Eltif 2.0, which includes amendments to regulation around European long-term investment funds (Eltifs), was the subject of a presentation and a press briefing at the Association of the Luxembourg Fund Industry’s annual private assets conference on 28 November 2023.

Andrea Vathje, senior advisor at the ratings agency and fund analysis firm Scope Group, presented some information about the new Eltif regime--due to enter into force in January 2024--and figures from a Scope report published earlier this year.

The idea behind the first Eltif regime “was to create a facility for private investors to invest into the European economy, especially into European infrastructure,” began Vathje. But “there was quite a slow start” and this was not as successful as legislators had hoped. At the end of 2022, there were 77 Eltifs approved and registered (with more than half registered in Luxembourg) and 11 products have been added this year.

With the revised regulation--which includes changes such as no minimum investment amounts, relaxed rules around leverage, a lower minimum of investment in qualified long-term real assets (55% instead of 70%) or eased requirements around distribution--it should be easier for retail investors to access.

€35bn to €50bn in next five years

In 2022, the Eltif market grew by 50% to reach €11.3bn of assets under management, said Vathje. And this is expected to grow to €35bn to €50bn in the next five years.

In terms of where the funds have been sold, the biggest market “by far” is the French market, with roughly €3.8bn having been invested in France. “It’s a very institutional market, as more than 50% is sitting with institutional clients,” she said. “But the market on the retail side is also growing,” as there are products that are “tax-efficient” for French retail customers.

“The second biggest market is Italy, with roughly two and a half billion invested by the end of this year. This is a very retail driven market: 95% of this money has been placed by products that can be sold to retail customers. And this is also tax-driven.”

Germany, on the other hand, is lagging behind, said Vathje, with €1.5bn invested by the end of last year (roughly €1bn of this amount sits in a single fund).

In terms of volume placed by asset class, it’s pretty evenly split between the categories of private debt, private equity and infrastructure, noted Vathje, referencing the Scope report. The remaining 9% goes to real estate and mixed strategies.

Vathje concluded her presentation by saying, “We are very optimistic that [Eltifs] will strongly grow, and we see that it’s definitely establishing itself as the one go-to product if you want to place private markets products to European retail customers.”

Alfi view

The European Securities and Markets Authority (Esma) on 24 August closed its consultation on the draft regulatory technical standards (RTS) under the revised Eltif regulation, and Alfi submitted its response to Esma this summer.

“We had some issues with cost specifications, because they’re extremely narrow and not really fit for purpose. There’s no one-size-fits-all, especially for very long-term funds, but you need to have ex ante,” said David Zackenfels, senior legal advisor at Alfi, covering a few elements of the industry association’s response at a press briefing before the conference, during which a new Eltif brochure was also presented.

One point that’s important for the industry is “the mandatory quarterly redemption period with only exceptional possibilities to derogate, as the text reads, and only exceptional possibilities to derogate is too strict. It means that a lot of funds that want to be more flexible--i.e., a couple of funds that we already have in Luxembourg that would want to benefit from this--would have to fall under these exceptional circumstances.”

Another element concerns the “mandatory presence of at least one anti-dilutive liquidity management tool,” he added. “It’s very important for the regulators. And it doesn’t really pose any problem for Luxembourg because we know those tools very well.”

Eltif 2.0 will enter into application on 10 January 2024, and Esma will submit the draft regulatory technical standards to the European Commission in early December. But given the time needed for the commission to review this, formal endorsement will likely only come next year. “We stress that the industry would prefer to have regulatory technical standards, that we all know in principle what is written in there.”

“However, we believe that the national competent authorities know what is in these regulatory technical standards level two, that will provide sufficient security to them and to the market of how to deploy them, and we have argued that waiting for a significant amount of time--i.e., until the end next year--would not be good.”

Luxembourg is ready, says regulator

The Alfi conference started with an interview of Marco Zwick, director at Luxembourg’s Financial Sector Supervisory Commission (CSSF) and during which the topic of Eltif 2.0 came up as well. The CSSF is ready to handle a high volume of applications for Eltifs, said Zwick, despite the short timing before the 10 January 2024 entry into force.