Scottish Widows set to launch open-architecture Long Term Asset Fund

Scottish Widows is set to launch an open-architecture Long Term Asset Fund (LTAF) later this year, pending regulatory approval, as part of its ongoing commitment to providing innovative investment solutions for its customers.

The open-architecture LTAF, sponsored by Scottish Widows and operated by an appointed full-scope Alternative Investment Fund manager (AIFM), comes with greater control, flexibility, consistency of governance and valuation methodology.

This operational simplicity offers advantages compared to investing in a range of LTAF sub-funds under different asset manager umbrellas and will serve to future-proof the offering, Scottish Widows said.

Key features of an open-architecture LTAF include access to a spectrum of private market investments, leveraging all implementation routes from global general partners (GPs) through primary or secondaries, co-investment opportunities and direct sourcing, it added.

It also allows a targeted focus on dynamic investment opportunities with minimal liquid exposure to help us maximise the full benefits of private markets.

Additionally, open architecture LTAF allows leveraging parent company Lloyds Banking Group’s expertise across UK-based private markets opportunities, including private equity, social housing and private credit.

Lastly, the structure features separate growth and credit LTAFs to better align risk and return throughout the retirement journey in our workplace pensions.

Appointed managers

To deliver the LTAF, Scottish Widows has appointed Carne Group as an AIFM, and Aberdeen Investments and BNP Paribas Asset Management as initial managers of growth and credit sub-funds, respectively.

Scottish Widows said that diversification of investment management capability in private markets is paramount to deliver good investment outcomes.

It said that Aberdeen will source core exposures in private equity, infrastructure and UK venture capital assets using its global network of more than 400 GPs. This, it added, will be complemented by the fund manager’s direct capability in real estate and private credit.

BNP Paribas AM, meanwhile, will source and originate diversified private credit assets from within the wider BNP Paribas Group and externally from its wide network of GPs.

Private assets push

Scottish Widows said that, as a founding signatory of the Mansion House Compact, announced by the UK government in 2023, it is dedicated to encouraging investment in private assets, including private equity, to support economic growth.

The LTAF will offer new investment options to over four million workplace pension customers across the UK.

Chira Barua, chief executive officer of Scottish Widows, said: “Private assets can be an attractive component of a modern portfolio structure for helping our customers achieve good outcomes in retirement.”

He said the strategy is a “win-win” as it also supports economic growth by providing funding to companies with bespoke financing requirements.

“As one of the UK’s largest workplace pension providers and part of a group whose core purpose is helping Britain prosper, this is an important building block in our endeavour to offer the most distinctive pension proposition in the UK,” Barua noted.

Kevin Doran, chief investment officer of Scottish Widows, added that the open-architecture implementation approach gives Scottish Widows “full control and future-proofing on how and where we invest within our LTAF”.

He said: “ The opportunity to source unique investment opportunities from across the Lloyds Banking Group estate only adds to the offering, meaning our policyholders will be able to see their investments at work within their local communities.

“With full control of our own sponsored vehicle, we have the visibility of cash flows from members’ contributions, right through to asset flows. This limits the need for precautionary liquidity, making sure our members get the full benefit of their investments in private assets.”

Jeremy Soutter, managing director at Carne Group, branded the creation of a new structure a “huge step change” in how a broader investor base can potentially access private markets.

Xavier Meyer, Aberdeen CEO, meanwhile, called the LTAF a “meaningful step towards the democratisation of private assets”.

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