ELTIF 2.0

Democratization of private markets is a term that is used to describe the opening of the private markets asset class to non-institutional wealth. The new EU ELTIF regime enables private investors to access these markets through vehicles with high levels of investor protection.

Eric Byrne, Head of Multi-Managers

The European Long-Term Investment Fund (ELTIF) regulation for alternative investment funds that benefits from an EU passport for marketing across the European Economic Area (EEA) was first introduced in 2015. ELTIF 2.0, in which the EU has introduced a simpler framework has come into force in January 2024. The changes in removing investment minimums for investors, the possibility of marketing to retail investors and the broadening of the definitions and ranges of investments within an ELTIF are unlocking opportunities in private markets.

The ELTIF regulation framework aims to encourage sustainable investment in the EU, whilst providing investors access to alternatives assets and ensuring investor protection. As outlined in the European Parliamentary Research Service (EPR) briefing referring to the 2023 proposal, the original objective of the regulation is to “facilitate the raising and channeling of capital towards long-term investments in the real economy.” The briefing highlights the definition in Article 2, point 6, of a ‘real asset’ as an ‘asset that has an intrinsic value due to its substance and properties’, and how this change to a broadened definition includes varied assets such as the environment, education, intellectual property or various infrastructure projects.

'Democratization of private markets’ is a term that is often used to describe the opening of the private markets asset class to non-institutional wealth. The overhaul of the ELTIF regime in the EU enables private investors to access ‘real assets’ through vehicles with high levels of investor protection as well as allowing for the possibility to market directly to these investors. This more friendly regulatory regime as well as innovation in products have played a part in accelerating this trend towards a wider access to ‘real assets’ in private market investing or democratization of private markets.

On the product innovation side, the industry is providing more alternatives to typical private market funds which were characterized by drawdown structures (difficult to administer), multi-million investment minimum amounts and complicated operational processes. In our view, the most notable development is the availability of semi-liquid ‘or evergreen’ vehicles which offer liquidity at periodic intervals, subject to some restrictions. With certain restrictions, this liquidity feature can also be built into the new ELTIF structures.

Unlike public market investing, these funds are designed to be long-term investments. The liquidity provided by these types of vehicles is idiosyncratic and not systemic – in case of a market turndown, the fund will suspend redemptions in part or in full. Investors have to not only be aware of this, but comfortable with this, too. In the ELTIF regulation framework, the requirement is that retail private investors are to receive clear and straightforward explanations.

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