Are Eltifs appropriate for retail investors?

“It’s definitely a good thing for a private individual to get private market allocations… to diversify and to get the whole range of the real economy into [their] portfolio,” said Markus Pimpl, managing director, private wealth Europe at Partners Group. Against a decreasing public market, he thinks that retail investors get exposure to an increasing market that also includes “successful tech firms.”

Evergreen fund is synonymous with semi-liquid fund

The ability to sell evergreen funds under the revised European Long-Term Investment fund structure (Eltif 2.0) to retail investors is a “big game changer,” stated Pimpl. He remarked that the new Eltif 2.0 EU regulation has moved from a strict closed-end fund structure under Eltif 1.0 to a product that could be offered as a semi-liquid fund structure with quarterly and monthly redemptions and subscriptions while loosening investment restrictions (i.e. 45% of the assets can be invested in Ucits funds). He pointed out that promoters are still free to offer closed-end funds.

“Evergreen funds are easier to digest from an operational point of view, because they are pretty much set up like Ucits funds. So, subscriptions and redemptions are going through Euroclear or Clearstream,” the two main settlement houses in Europe, said Pimpl.

Watch out for negative surprises

Yet he warned that investors expecting private market returns may get negative surprises given that Eltif 2.0 can invest up to 45% in public equities through Ucits funds. In that sense, he thinks that private investors were more protected with closed-end funds under Eltif 1.0. He thinks that this can be overcome by ensuring that financial advisors are well trained and adequately transmit the information to investors.

Pimpl repeatedly said during the interview that, both internally and externally, staff at PG prefer to talk about evergreen funds instead of semi-liquid funds. At conferences, for example, the latter name sounds like a faulty product. He stressed that, by design, the asset manager may have “to gate the fund” (temporarily suspend redemptions) to avoid panic sales and therefore protect investors to during an outflow crisis. Yet again, the proper communication to investors is crucial to maintain trust in the product.

Pimpl believes that there is a good chance that sales of evergreen Eltifs funds will gain traction and scalability. “I’m not saying we will see exploding numbers [in 2025]. It will take some time. It will be a journey.” PG currently manages about €100m in assets under management in Eltifs.

Interest rate levels is key for the fundraising

Apart from a handful of very large and well-known players, Pascal Rapallino, chair of the Luxembourg Association of Family Offices, noted that raising capital continues to be “complicated” currently among all private assets for retail but also for institutional investors due largely to higher interest rates in Europe. “It has eased the investment life of retail of retail investors with term deposits at 4.5%+ at the bank.” He thinks that the arrival of Eltifs 2.0 in January 2023 was horribly timed.

Rappalino is also cautiously optimistic for 2025 but more so for 2026, should interest rates continue their downward trend, but warned that geopolitical and economic development may be reshaped by President Trump. “Interest rates may jump back up as quickly as they went down.”

Making sense of IRR or alternative return metrics

“No private individual understands ,” argued Pimpl. He noted that many PE firms are touting an internal rate of return in the mid-twenties to investors. He explained that the money is not at always at work due to capital calls and distributions. “Typically you would say, on average, if you come commit €100k only €75k to €80k are actually invested, because at one point you also get distributions back.”

Global Value Sicav, a fund launched by PG in 2007 with €8bn in AuM, reports a net annualised return of 10.6%. As you are fully invested in the fund at the subscription date (rather than committed in a closed-end fund), Pimpl argues that the evergreen fund makes use of the “massive power of compounding” by accumulating capital and reinvesting it within the fund instead of distributing it.

In its marketing material, PG simulated the performance of a hypothetical evergreen fund (annual return: 11%) and a closed-end fund (IRR: 20%) over 10 years (assuming that uninvested capital is generating a 5% yield). It showed that both funds reached a of 2.8x. Anecdotally, Pimpl remarked that a very successful in-house private equity closed-ended PG fund achieved the same total return as for its evergreen fund over a 10-year period. Importantly, he expects similar developments in the future.