Just shy of four fifth's (78%) of UK and US asset managers with a European presence are considering launching a LTAF, according to new research from Carne Group, a leader in fund regulation and governance solutions for the asset management industry.
For its latest report, Atlas 2024, Carne commissioned research of 201 investors across the UK, Europe and US representing $1.93trn in combined assets under management (AUM).
Carne said the UK’s Long-Term Asset Fund (LTAF) and the European Long-Term Investment Fund (ELTIF) are set to drive significant inflows into private markets, with 88% of wealth managers and 78% of DC pension schemes in the UK and Europe expecting increased participation in private markets investment over the next three years because of LTAF/ELTIF opportunities.
Market offers area of significant untapped demand, with less than a quarter (24%) of wealth managers and only 18% of DC schemes currently accessing private markets through an LTAF or ELTIF.
To plug this gap, almost three-quarters (74%) of US managers who have a presence in Europe say they are considering launching a LTAF, while 82% of UK asset managers are considering doing so.
Its findings show that the booming demand for private markets is being driven by a growing appetite for illiquid investments among UK and European DC pension schemes and wealth managers, with pension schemes looking to increase their allocations to private markets by on average 10% over the next three years, while wealth managers expect private markets to account for 11% of their AUM by 2030, up from 5% in 2021.
Carne’s report also finds that fund structure innovation through the launch of LTAFs and ELTIFs is a critical enabler in opening up the private market opportunity to DC savers and wealth clients.
Over eight in 10 (88%) UK and European wealth managers questioned expect their sector’s level of investment into private markets to increase over the next three years because of LTAF/ELTIF opportunities specifically, including 28% who expect that increase to be ‘dramatic’. DC schemes responded similarly, with 78% predicting increased use of these structures and 31% a dramatic rise.
This scaling up of private market exposure through LTAFs and ELTIFs presents asset managers with significant opportunity.
While the vast majority of DC schemes and wealth managers intend to use LTAFs and ELTIFs in the next three years, currently only 24% of wealth managers and 18% of DC pension schemes already access private markets through an LTAF or ELTIF.
Carne’s research shows that asset managers on both sides of the Atlantic are recognising this opportunity and turning to the LTAF and ELTIF as key enablers of engagement with this growing investor base. Nearly three-quarters (74%) of US managers who have a presence in Europe surveyed say they are considering launching a LTAF; 42% say are looking into ELTIFs. Across the pond, the vast majority (82%) of UK asset managers are considering launching a LTAF, while 28% are looking into ELTFs.
While the LTAF structure has thus been cemented as a central pillar in the growth of private markets, there does however remain a number of significant challenges for investment managers intending to bring such products to market, notably regulatory complexity.
Regulation is identified as a key obstacle to successful European fundraising by US and UK managers. This complexity also has a commercial implication with the majority of managers (68%) expecting to spend between 25% and 50% more over the next two years on resources dedicated to managing regulatory compliance.
As a result, investment managers are increasingly turning to third-party specialists for support in launching and raising funds in Europe. The majority (87%) of managers questioned by Carne expect to increase their use of outsourcing over the next five years, citing a combination of motivations including reducing regulatory risk, achieving greater speed to market, and improving transparency for reporting.
Jeremy Soutter, managing director at Carne Group, said: “In the UK alone, DC assets are set to reach £1trillion by 2030, with UK schemes looking to increase their allocation to private markets meaningfully in the next few years. This represents a huge market opportunity for the asset managers that can help fulfil this allocation.
“For wealth managers and DC pensions schemes, the LTAF and ELTIF serve as critical routes into illiquid asset classes and will catalyse the growth of private markets. Launching LTAFs or ELTIFs in a time-efficient manner will be critical for asset managers looking to capitalise on the private market opportunity.
“Equally, some asset managers may need to assess if an LTAF or ELTIF is indeed necessary. With a number of DC master trusts now having, or planning to have, their own LTAF in place, asset managers may find they’re able to be appointed as sub-advisers within a schemes’ LTAF umbrella structure.
“Launching an LTAF can be a complicated, lengthy and costly process – made all the more difficult by the competitive pressure to get to market quickly, a challenging commercial backdrop in which cost-effectiveness is key, and an increasingly complex regulatory agenda both in the UK and EU. Carne is therefore witnessing a significant number of asset managers turn to third party specialists to steer LTAFs through the regulatory process and enable speed to market.”
Carne Group commissioned the market research company Pureprofile to interview 201 senior executives working for US and UK private market fund managers, as well as UK and European DC pension schemes and wealth managers. 50 US private market fund managers collectively manage $805 billion in AUM; 50 UK private market fund managers collectively manage $682 billion in AUM; 51 UK and European DC schemes collectively manage $317 billion in AUM; 50 UK and European wealth managers collectively manage $126 billion in AUM.
Collectively, the organisations of those surveyed manage $1.93trn. Those interviewed included COOs, CFOs CROs, Heads of Product, Heads of Compliance, Head of Legal and senior fund managers. The survey was conducted in May 2024.
