The new fund brings Aviva’s LTAF range to three with the Multi-Sector Private Debt product joining real estate and climate transition focused funds which are designed to make it easier for retail investors such as defined contribution (DC) pension scheme members to invest in illiquid assets.

The new LTAF received an initial GBP750 million of investment capital from the asset manager’s My Future Focus default DC pensions solution, and the asset manager expects other workplace schemes to follow suit.

Daniel McHugh, Chief Investment Officer at Aviva Investors, says:“Private debt is a key growth area for us, and we believe our multi-sector approach will best-capture relative value through the market cycle. This should give it potential to deliver strong risk-adjusted returns and diversification to pension schemes, whilst also meeting their liquidity needs.”

The first LTAF received Financial Conduct Authority (FCA) approval in March 2023, with a view to allowing retail investors move avenues to invest in illiquid assets.

2024 has seen something of a flurry of LTAF releases. This November, Fulcrum Asset Management announced it had received regulatory approval for its first commingled Long Term Asset Fund.

The WS Fulcrum Diversified Private Markets LTAF is the firm’s second LTAF following the launch its first offering on behalf of a single-employer UK DC pension scheme earlier this year.

The latest fund is an open-ended UK OEIC targeting long term capital growth via exposure to a diversified mix of private assets including value-add real estate, value-add infrastructure, natural resources, alternative credit and private equity including venture capital.

And this September, Schroders received approval for is Capital UK Innovation LTAF which will invest in early-stage UK life science and technology companies that align with eight key innovation themes: artificial intelligence, cybersecurity, fintech & payments, consumer, infrastructure software, vertical SaaS, oncology and biotech discovery platforms.

This is the first venture capital LATF to hit the market.

The rush to market for LTAFs follows increasing demand from DC schemes for suitable vehicles in which to channel assets to private markets.

An Aviva survey published this January found more than two-thirds (69 per cent) of DC pension funds expect to increase allocations to real assets over the next two years, up from 51 per cent a year earlier.

A second survey of institutional investors conducted by Carne Group in 2024 reports that more than three-quarters (78 per cent) of DC schemes expect the level of investment into private markets by wealth managers in the UK and Europe to increase over the next three years because of LTAF opportunities, 31 per cent of whom forecast a dramatic rise.

The Investment Association’s Imran Razvi expects to see more LTAFs launched, notably those focusing on single asset classes.

He says: “Our sense is the LTAFs that are currently available are more of a multi-asset, one stop shop approach to private markets. But increasingly you might see more asset class specific products as well.”

The bfinance quarterly Manager Intelligence and Market Trends report published this August reveals that while private debt deployment activity is inherently more robust than other illiquid asset classes, due to the more frequent need to recycle capital into the asset class, “investors have also noted the apparent resilience of direct lending strategies and healthy spreads helped, in part, retrenchment in bank lending”.

The report also finds that investors who entered private debt in the 2015-20 period and who are now seeking to diversify and develop these portfolios, are “exploring dedicated exposure to niches such as healthcare”.

Kathryn Saklatvala, Head of Investment Content at bfinance, said: “While private market fundraising has slowed slightly, demand for private debt is strong and appetite for real estate is increasing.”

Across the world multi-billion-dollar pension funds are opting to diversify their portfolios with allocations to private debt.

The GBP31.6 billionLondon CIV, the local authority pension pool for the London boroughs and the City of London, is due to launch a new private credit strategy in the third quarter of 2024. The latest tranche in the local authority pool’s private debt strategy will allocate 70 per cent to senior direct lending and up to 30 per cent to asset-based lending.

This April the AUD139 billion Australian pension fund UniSuper has increased its portfolio exposure to private credit.

The fund now holds approximately AUD1 billion in dry powder, which could potentially be invested in the sector.

Meanwhile this July the SOKA-BAU, a German organisation overseeing two pension funds for employees in the construction industry, has committed 5 per cent of its total portfolio to private debt.

And this summer a survey from the Pensions and Lifetime Savings Association’s Local Authority Conference found 36 per cent of Local Government Pension Scheme (LGPS) funds are planning to increase their allocations to private credit in 2025.

The boom in private markets allocations also offers new business opportunities for third party providers supporting administration and fund services.

At the start of the year the GBP56 billion local authority pension pool LGPS Central, announced a “strategic collaboration” with State Street as the provider of fund administration services for its private markets products.

State Street will initially support 13 funds managed by a combination of LGPS Central and its third-party managers in the form of fund administration, registration services, investor services and regulatory reporting services.

Speaking at the time of the appointment, Head of Investment Operations at LGPS Central, Neil Wain said: “This collaboration promises to bolster operational efficiency and further strengthen governance while providing long-term, scalable solutions for our private markets offering. In addition, State Street will provide us with a portfolio monitoring solution that will enable deeper, more sophisticated analysis using online data delivery tools, equipping us with the critical information that it needs – when it needs it – to support effective decision-making.”

However, the firm writes: “For context, the number of investors who believe that private equity is overvalued as of June 2024 is lower than in our June 2023 and June 2022 surveys, at 53 per cent and 66 per cent, respectively. Looking at investors’ views on future private equity performance, 45 per cent believe it will perform better over the 12 months from June 2024, compared to 26 per cent believing so for the 12 months from June 2023. Regarding private debt, 63 per cent of investors see the asset class performing about the same over the coming 12 months compared to the previous 12 months, up from 37 per cent in our June 2023 survey. However, 30 per cent of private debt investors expect performance to increase over the 12 months from June 2024, compared to 53 per cent stating so in June 2023.”

The report goes on to highlight that infrastructure investors’ risk appetite is growing. “Core-plus infrastructure funds are stated as offering the best opportunities for investors, as of June 2024, at 57 per cent of respondents. This has risen from 40 per cent of respondents as of June 2023. Notably, the typically highly leveraged asset class has exposed investments more so to the higher for longer interest rate scenario and may explain why investors are increasing their risk appetite. Indeed, 67 per cent of respondents cite interest rates as a key challenge for the coming 12 months from June 2024, as 55 per cent did in June 2023.

“Aligning with infrastructure investors, real estate investors see interest rates as the biggest challenge to returns generation over the 12 months from June 2024, with 78 per cent of respondents stating so.”

 The report notes that interest rates have affected performance of real estate investments more drastically than other asset classes. As of June 2024, 66 per cent of investors report that asset prices were lower than 12 months ago, with over half (51 per cent) of investors thinking their investments have fallen short of expectations. However, 52 per cent of real estate investors expect performance to improve over the 12 months from June 2024. This compares to 15 per cent of respondents believing so as of June 2023.

Additional key report facts:

Private equity: 80 per cent of surveyed investors cite the current exit environment as a key challenge for private equity returns generation for the 12 months from June 2024 – the highest of all possible answers. Preqin analysts highlight that this concern aligns with 57 per cent of investors’ opinion, seeing secondaries as the best opportunities in the next 12 months, as of June 2024.

Venture capital: Asset valuations and the exit environment remain the key concerns for investors over the 12 months from June 2024, with 63 per cent of respondents stating so for each answer. Lead author of the report and the venture capital chapter, Michael Patterson, notes how this is materially impacting capital commitment plans and fundraising. 59 per cent of respondents intend to commit to a venture capital fund in H1 2025 or later, as of June 2024.

Private debt: Direct lending funds remain the most favored strategy for investors, with 70 per cent of respondents saying so, as of June 2024. Direct lending has now been the most popular strategy for investors since 2021. Asset-backed lending is the most popular emerging strategy, with 58 per cent of respondents stating so.

Hedge funds: 35 per cent of investors state that they plan to reduce their allocations to hedge funds, in the 12 months from June 2024. This has grown from 26 per cent planning on reducing allocations from the 12 months from June 2023. Notably, 68 per cent of respondents intend to defer their next capital commitment to 2025, within which, 40 per cent state that being in H2 2025 or later.

Michael Patterson, Senior Associate, Research Insights at Preqin says: “Alternatives continue to be a key component of portfolios. The key reasons institutional investors cite for investing in alternative assets are diversification, return enhancement, and reducing portfolio volatility. It’s not surprising that over the coming year institutions expect to invest more; private debt, private equity, and infrastructure are expected to be the biggest recipients of more capital flowing from investors over the short term.”

The full set of responses is as follows:

What factors do you think may currently prohibit investment in private debt assets?

Regulatory and compliance – 63.2 per cent

Technological limitations – 20.6 per cent

Investment transparency – 10.3 per cent

Other – 5.9 per cent

Do you believe trade financing will expand from banks and alternative lenders to be integrated into business-to-business platforms such as logistics and e-commerce?

Yes – 86 per cent

No – 4 per cent

Unsure – 10 per cent

Both private debt and trade finance assets have witnessed remarkable growth in recent years, as investors shift to alternative assets to create a diversified, stable source of income amid interest rate rises and ongoing volatility.

Total assets under management allocated to private debt are expected to hit USD2.3 trillion by the end of 2027, increasing at a faster rate than alternatives overall. However, USD400 billion of the USD1.5 trillion current size of the private debt industry has still not been deployed. 

Similarly, while trade finance has seen global goods exports grow by 26.6 per cent and 11.5 per cent in 2021 and 2022, there remains a trade finance gap of USD2.5 trillion, a sign of the limited financing available to meet increasing demand, the firm writes.

Tradeteq’s platform converts trade finance and private debt assets into tradeable securities, thereby creating much needed liquidity in both markets. More than USD3 billion worth of notes have been issued under the platform’s securitisation as a service offer, and Tradeteq has serviced over 140 clients, which have collectively financed more than two million instruments through the platform.

Mattia Tomba, Head of International Markets at Tradeteq, says: “These results should serve as a call to transform access to private debt and trade finance investment, at a time where demand for both is growing rapidly. With any shifts in regulation and compliance likely to take time, Tradeteq’s mission to facilitate transactions between institutional investors and trade finance and private debt originators is a swifter solution to creating liquidity in a traditionally opaque market. This is vital to boost corporate lending, which is one of the key factors that will ensure every great idea is funded and help accelerate economic recovery.”