“Typically, the alternative investment asset class is a close-ended fund, usually with institutional investors and very large ticket sizes, not within reach of retail investors”, explains Mr Braun. “The idea with the European Long-Term Investment Fund (ELTIF) regulation, implemented in 2015”, he says, “was to open the field of such long-term investments that contribute to the objectives of the European Union to retail investors.” In 2020, there were 25 ELTIFs with around €2.4 billion under management. Currently, there are 84 ELTIFs across the EU, with 48 in Luxembourg alone, and €7 billion of assets under management: just a fraction of the trillions of euros of assets in the alternatives industry. Many believe that, with the framework being upgraded and the changes to be implemented by the end of the year, ELTIFs will finally catch on and go mainstream.
Benefits of the ELTIF
Mr Scodellaro explains that “the European passport is a key element for the ELTIF. If we look at the other categories of AIFs in Europe, there is no passport to market for retail investors, so you have to rely on a national private placement regime. Another advantage of the ELTIF”, he says, “is the possibi- lity to do loan origination. Until now, if you had wanted to perform that kind of activity in various member states, you would have had to comply with national regulations, which can be tricky. Still, an ELTIF,” he reminds us, “is a European regulation, ‘agnostic of national regulations.’ If you are in Luxembourg and want to create an ELTIF, you still need to consider the regulatory form that it will adopt from a national standpoint and comply with the Luxembourg requirements of the particular regulatory regime adopted.”
The unique feature of the ELTIF is the possibility to reach retail investors across the European Union using a marketing passport.
Liquidity and redemption
“By definition, ELTIFs are close-ended funds,” Mr Scodellaro says, “and investors do not necessarily have the right to ask for the redemption of their shares. However, following the adoption of the new regulation, broader liquidity possibilities are now possible.”
The new regulation said that if there were enough subscriptions in the fund, existing investors could exit by matching their redemption orders with the new subscriptions. The possibility of such transfers is also important from a liquidity perspective because the investments are in principle illiquid and cannot be sold quickly. “So if there is a crisis situation and some investors want to leave, there has to be a mechanism that allows them to do so,” Mr Braun explained.
In addition to the system of matching, the ability to grant redemptions will exist, Mr Scodellaro states, but this will be limited by the percentage of liquid assets into which the fund has invested. He explains that ELTIFs can generally invest in two pockets, the first of which he calls “ELTIF core assets, such as private equity, real assets, real estate, small caps, all other such alternatives.” The fund may also invest in UCITS-eligible assets, he says, which are most of the liquid and listed assets. At least 55 percent should be invested in illiquid assets, and the rest can be invested in liquid assets. Whenever you offer liquidity to investors, it will be set against a 45 percent limit. “That way, you are not forced to liquidate illiquid assets, which would defy the very purpose of the ELTIF,” he added.
Mr Scodellaro highlighted finally that the listing of ELTIF should be a solution to consider for ELTIF manager, as it is currently underexploited.
If they become operationally friendly, ELTIFs will speed up alternatives going mainstream
Other Challenges
Mr Scodellaro says that retail investors and the industry as a whole need to be better informed of the benefits of ELTIFs, which will require some work. Mr Braun suggests that opening up an alternative fund to the retail market could increase the number of investors by a factor of a hundred or even a thousand, “which is a very different ball game for service providers,” he said. “Their teams will have to know the world of alternatives. Another challenge,” he says, “is more of a technical one. Here, the cash will be in the fund on day one, unlike with private equity or real-estate funds. It could be a challenge to be able to invest as soon as possible after the launch.”
The benefits of ELTIFs
Marketing passport
Allowing an ELTIF to be marketed to retail investors all across the EU
New liquidity features
Facilitating the liquidity offered to retail investors
For more information, visit and
Find out more by reading