Friday Briefing: Do YOU own an Innovative Finance ISA?

Speaking to several platforms, Cristian Angeloni found that investors are fresh out of luck, with access to the Innovative Finance ISA not on the agenda any time soon.

As such, the LTAF – and still mystical “open-ended property funds with extended notice periods” – will remain out of reach as platforms tussle with the case for the IFISA.

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For some, the LTAF itself is an issue, given their illiquid focus and long redemption periods, as managing director at Evelyn Partners Jason Hollands suggested, a view echoed by AJ Bell head of retirement policy Tom Selby: “It is hard to see the case for making [LTAFs] available to ISA customers.”

However, there is divergence of opinion on the matter, and Hargreaves Lansdown’s Susannah Streeter held grievance with the IFISA rather than the LTAF.

“The expansion of them within Innovative Finance ISAs cracks the door to this opportunity, but as most money is held in Stocks and Shares ISAs, the chancellor missed the opportunity to open this up further to holdings in these ISAs,” she told Investment Week.

Of course, investors already have access to a wide range of illiquid assets via the investment trust sector, with the price of liquidity determined by their discount mechanism. (Or the open-ended property sector, with the price of liquidity often being indefinite suspension.

Autumn Statement addenda

There is a question central to the debate that seems to have gone by the wayside, much as it has in the Bitcoin ETP debate – while everyone is arguing over the possibility, not many people are questioning the demand.

Does any retail investor actually want the LTAF?

As Evelyn Partners’ head of multi-asset funds Ben Seager-Scott put it: “I’m simply not sure that many retail investors are really comfortable with the concept of illiquidity and potentially being locked into these products for protracted periods of time.”

Realistically, 30 days in the grand scheme of the minimum five to ten years one should be holding such an asset shouldn’t be too much of a bother, but when people become accustomed to something, it’s very hard to shake that belief.

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One question we have had an answer to is whether platforms are able (or want) to host investments with less than daily dealing, as HL’s Streeter alluded to.

If you offer it in an ISA people actually own, maybe we’ll think about it.

The chart below (courtesy of HMRC) shows the number of adult ISAs subscribed to over recent years. Apparently, there is a fourth colour on there that shows IFISAs – prize to anybody who spots it.

(There were just 17,000 in 2021-22.)

And this time next week (or thereabouts) we will know the outcome of the vote on the settlement scheme proposed to investors of the former Woodford Equity Income fund.

The only thing we know for certain is, regardless of the outcome, this story is far from over – even if that will be 1,522 days since the fund’s closure was confirmed, or 1,657 days since the suspension.

The investment trust sector is having its watershed moment

We have covered the potential timelines and outcomes of the scheme’s approval or otherwise but, this week, what caught our eye was the latest interim report of the fund’s remaining illiquid assets.

Over the course of 12 months, the remaining value of the fund shrunk 40% thanks to a hefty share price decline from BenevolentAI, and the collapse of Mafic, the US basalt producer that received multiple follow-on investments from Link Fund Solutions, made “in investors’ best interests as the company seeks to move to increased production”.

While a 40% collapse is a chunky drop, it represents roughly £24m of investor capital wiped out, a figure that pales in comparison to the £964m LFS has overseen the erosion of since June 2019.

The vote will be held on 13 December, with the results due on 15 December.

This article was first published as part of the Friday Briefing series, which is available exclusively to Investment Week members each week. Sign up here to receive the Friday Briefing to your inbox each week.