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Individuals should be able to invest in private assets within Isas, according to the chief executive of the Investment Association, even as some of the UK’s largest wealth managers express concerns over their suitability for retail.
Chris Cummings, chief executive of the IA, which represents fund groups, wealth managers and private equity firms overseeing £9.1tn, told the Financial Times that semi-liquid private asset funds should be made more widely available in tax-efficient wrappers.
This could have a “profound” effect on improving people’s retirement outcomes, he added. “What we’re calling for is for government, industry and regulators to be working more to open up access to private markets in combination with public markets,” Cummings said.
“My personal view is that, for the majority of people, exposure to private markets at somewhere between 5 [and] 10 per cent of their portfolio would be sufficient to make a profound difference to their pension when they come to retire.”
The UK has developed the Long Term Asset Fund, which is aimed at investing in both private markets and investments that are easier to sell, for pension schemes and individual investors.
Although appetite for this vehicle among wealth managers and retail investors has been limited so far with just 23 approved products in the UK, Cummings said wealth managers and do-it-yourself investment sites were keen to provide access for their customers.
Wealth managers such as RBC Wealth Management, Evelyn Partners and Quilter Cheviot said they would soon be able to offer greater access to private markets, while “DIY” investment sites that sell funds directly to consumers, such as Hargreaves Lansdown and AJ Bell, are also considering selling these products, according to people familiar with the plans.
But wealth managers have told the FT that they also had concerns over liquidity — the ability to easily sell assets — drawing parallels with property funds that have in the past been forced to halt customer withdrawals for months in order to sell assets during tough market conditions. They have also raised concerns over how private assets are valued.
Cummings noted that liquidity was “absolutely” a concern for wealth managers.
“There’s been a lot of discussion about the potential for retail investors engaging with private markets,” said Cummings. “[Wealth managers] recognise that actually accessing the illiquidity premium can make a huge difference to a retail investors’ portfolio, the level of pension they can get.”
His comments came as the IA unveiled a policy paper on private markets to boost UK growth at its inaugural summit on the topic on Wednesday. The gathering will bring together policymakers, regulators and industry experts to discuss how private markets can be “an engine for wider economic and social prosperity”, as well as the opportunities and challenges for investors.
The Financial Conduct Authority’s proposals for offering free financial support should help retail investors understand the risks and opportunities, Cummings said.
“I think people would . . . welcome a discussion about why their funds are not an ATM,” he added. “You shouldn’t be investing if you want immediate liquidity — that’s what a cash account is for.”
