Returns across 22 UK Long-Term Asset Funds (LTAFs) vary by around 5 percentage points a year.
This is based on an analysis by XPS Group in its ‘Decoding the LTAF Landscape: Same Label, Different Outcomes’ report, which found disparities in asset allocation, liquidity, and fees even when funds operate under the same LTAF structure.
According to XPS capital market assumptions, the fund with the highest expected return was around 5 percentage points higher than the lowest. Total expense ratios ranged from 0.6 per cent to 3.3 per cent a year, while liquidity allocations ranged from 0 per cent to 30 per cent.
XPS said the differences could become more important as defined contribution schemes prepare for the government’s Value for Money framework, which is expected to put more emphasis on investment outcomes and peer-relative performance.
It said schemes considering LTAFs should assess underlying investments, risk profiles, liquidity arrangements and costs rather than treating the LTAF label as a standardised investment proposition.
XPS Group senior investment consultant Neil Maines says: “The Value for Money framework is already driving a laser focus on achieving strong net of fee returns versus peer DC asset owners. We believe that selecting the right private market allocation will be a key component of meeting the requirements of the Government’s imminent Value for Money framework.”
XPS Group senior investment consultant Joe Howley says: “Liquidity is one of the most important judgements DC schemes need to get right when investing in private markets. The right balance will depend on the individual circumstances of each scheme, but liquidity should be a deliberate part of the investment strategy rather than simply a by-product of fund selection.”
