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FCA looks for ways to back long-term investment

The FCA has today proposed changes that would help unlock patient capital – investment seeking long-term returns, such as venture capital or infrastructure – through unit-linked funds to retail investors.

The regulator has also published a discussion paper on the effect of the existing UK framework on investments in patient capital.

As part of this year’s budget, chancellor Philip Hammond tasked the FCA with reviewing the existing UK fund framework and the effect it has on access to patient capital.

Is the govt really on the side of long-term investment?

The regulator concluded that its existing regulatory regime does not pose barriers for this type investment.

The discussion paper, published today, did not find any specific impediments. Instead, it outlined existing opportunities to invest in patient capital and invited feedback that would identify potential barriers to entry into the market and proposed solutions.

Woodford proposes new ‘patient capital’ Isa

The regulator did not propose any changes to the existing authorised fund rules, but said it would consider and consult on responses to get an informed view on whether any rule changes are necessary.

FCA executive director of strategy and competition Christopher Woolard says: “We are seeking views to help us identify any unnecessary barriers to investment in patient capital through authorised funds. We will ensure that any changes continue to provide an appropriate level of protection for consumers.”

Aegon pensions director Steven Cameron adds: “We welcome the FCA’s consultation, looking at ways of making ‘patient capital’ investments available to retail customers with appropriate protections. For some, a modest exposure to patient capital investments within a more broadly diversified fund may appeal.

“There may also be a demand for funds dedicated to patient capital investment, although these should be considered high risk and are likely to be illiquid.”

The regulator is seeking comments by February 28 next year.

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  1. Perhaps the first issue the FCA should seek to clarify is the extent of consumer demand for ‘patient capital’ investments which, by definition, are likely to take a long time to deliver decent returns.

    Have those returns, historically and in any way consistently, shown themselves to be better than those available from conventional funds and thus worth the extra wait? And are investors happy with the idea of such investments, along the way, being both higher risk and more illiquid?

    Personally, I see no particular attraction in such investments, quite the opposite in fact, so I would have to spend a lot of time and page space justifying any recommendation to clients to use them. I imagine that a fair proportion of each year’s review being taken up with having to field questions such as When are these investments you’ve recommended going to start doing anything worthwhile compared with the rest of my portfolio?

    In short, is this an area that really warrants any sort of prioritisation on the part of the FCA, particularly in view of all the others towards which it’s manifestly failed to allocate adequate resources?

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