European Long-Term Investment Funds – or ELTIFs – are regulated investment vehicles that were born out of a regulation introduced by the European Union (EU) in 2015.

The aim of the framework is to increase the amount of capital available for companies and projects that require long-term financing in Europe. 

At the same time, ELTIF offers retail investors access to unlisted asset classes including private equity, private debt and infrastructure, which had historically only been available to institutional investors, such as pension funds.

ELTIF 2.0 in a nutshell

Despite initial optimism, just 54 ELTIFs were launched between 2015 and 2021.¹ As a result, the EU undertook a consultation with the industry, resulting in a new set of more flexible rules, which came into force on 10 January of 2024.

The “ELTIF 2.0” regulation has removed some of the challenges that have prevented the structure from becoming more popular, increasing the potential benefits to both fund managers and investors. 

What ELTIFs can invest in

The scope of what ELTIFs are allowed to invest in covers a broad range of assets, including private equity, debt instruments and real assets such as infrastructure and commercial real estate. The framework also encompasses sectors like fintech, as well as certain securitised assets and green bonds.²

ELTIFs also allow investments in other funds by adopting the structure of a fund-of-funds vehicle, in addition to making co-investments and investing in secondary transactions.³

Some assets are still not permitted under the regulation. These include investments into works of art, manuscripts, wine stocks, jewellery or other assets, “which do not in themselves represent long-term investments in the real economy”.⁴

Who can invest

The introduction of ELTIF 2.0 should allow retail investors an easier and more flexible access to private markets. Specifically, new rules have removed the €10,000 minimum investment threshold, as well as the rules pursuant to which investors with a portfolio of less than €500,000 could not invest more than 10% of their overall assets in ELTIFs.

Instead, suitability assessments are now aligned with the EU’s overarching legislative framework designed to regulate financial markets: MiFID II. This is a test designed to assess an investor’s knowledge, experience, financial situation and objectives to determine if the ELTIF is an appropriate choice.⁵

Liquidity

While the original ELTIF regulation only allowed for closed-ended funds, ELTIF 2.0 allows for the possibility of redemptions prior to the end of a fund’s life. However, as of this writing, there is still further clarification required on the rules that will govern this process, including minimum holding periods, notice periods and the size of redemption permitted.⁶⁷

Source: Moonfare 2024