How can the Market Make the Most of ELTIF 2.0?

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Interview with James Abram, Principal Presales Consultant at Temenos Multifonds by Johann Herz, Head of Events and Communication at LPEA as published in Insight Out #29.

ELTIF 2.0 is finally here, having come into force in January 2024 to broaden access to alternative investments. A response to investors’ never-ending drive for alpha and the constant quest of fund managers for new revenue streams and offers, the new legislation has the potential to change the shape of the market. In this feature, we ask James Abram, Principal Consultant at Temenos Multifonds, what ELTIF 2.0 means for the industry – the upsides, challenges, market experience so far – and what managers should be doing now to take advantage of this change.  

Now that ELTIF 2.0 has come into force, how will it benefit asset managers and investors?  

Asset managers stand to benefit in two ways from this new legislation. First, it makes it possible for traditional asset managers to offer attractive alternatives to their clients, who are looking for more diversification and protection from inflation. These clients can also see that returns from Private Equity funds are outperforming what they can get in the mutual fund market. And for private funds whose traditional market of institutional investors has become saturated, ELTIF 2.0 gives them the potential to tap into a brand new pool of semi-professional and retail investors. 

Passporting under ELTIF 2.0 gives asset managers another advantage. Because the legislation is EU-wide, funds can be marketed in any member state without having to comply with local regulations. A fund domiciled in Luxembourg can now be distributed across Europe.  

And for investors, ELTIF 2.0 means more choice, and potentially better returns from alternative investments that have up to now been largely inaccessible to them. 

What are the operational and technical challenges of this shift?  

First, there’s scale and volume. Typically, PE asset managers operate high-value, low-volume operations with small numbers of investors who may each be putting in hundreds of millions. The retailisation of alternatives turns this on its head, bringing in large numbers of investors committing sums that could be as low as €1,000. Thesemanagers need to be able to operate at this vastly different scale. 

There are also issues around liquidity. Semi-liquid alternative funds have been introduced for investors who need to be able to get in and out of funds more quickly and easily. However, they also bring significant challenges to automation and efficiency in existing support/back-office systems – for example, around how to apply lockup periods and gating mechanisms, or the need for managers to hold liquidity to service redemptions.  

Compliance is a further challenge: specifically, how to stay compliant while offering PE investments to both professional and retail investors. Although ELTIF 2.0 loosens many of the restrictions that were in the original ELTIF regulation, managers will have to comply with MiFID II appropriateness tests as they onboard retail investors. Managers will also need KYC/AML frameworks to allow for the onboarding of high volumes of investors. 

What is your role in supporting ELTIF 2.0 and the growth of alternative funds? 

The capabilities of Temenos Multifonds mean that it is ideally positioned to help the industry overcome the challenges associated with the retailisation of private assets. Its embedded workflow and control framework, native SWIFT interface and private market APIs enable clients to address the challenges of both scale and volume.  

Our platform also offers a full suite of liquidity management tools required by ELTIF 2.0, including gating, fund lock-ups, side pockets, and transaction-level fees. Its asset class coverage spans both long-term, illiquid assets and UCITS eligible liquid investments, and Multifonds also manages master/feeder and fund of funds structures across asset classes and currencies. Finally, our platform addresses the compliance challenges of alternatives, with the ability to record MiFID II assessment data on retail investor suitability. 

It is for these reasons we have recently been chosen by a leading fund administration provider to support the launch and administration of both closed and open-ended funds with liquidity management features. Here, Multifonds is automating and streamlining investment operations for the provider, enabling it to onboard an unlimited number of investors and automate a wide range of activities including commitment tracking, capital calls, valuation, drawdowns, distributions, and fees processing.  

The administrator can use the platform across the full investor life cycle, including digital onboarding, AML and KYC due diligence, and MiFID II classification and appropriateness assessment. 

With fast onboarding, pre-packaged liquidity management tools and built-in connectivity to SWIFT, NSCC, Euroclear and Clearstream, Multifonds offers an out-of-the-box solution that reduces the time to market for organisations looking to benefit from the opportunities of ELTIF 2.0. Its high levels of STP and exception-driven workflows enable the platform to handle the high volumes associated with retail investors coming into the alternatives market. 

How can managers and administrators quickly take advantage of the ELTIF 2.0 opportunity? 

The changes and challenges of ELTIF 2.0 mean that for managers and administrators looking to take rapid advantage of the opportunity it presents, it is less about migration and more about looking for entirely new platforms. It’s here that SaaS options such as Multifonds present an ideal solution. Pre-packaged with all the necessary connectivity and capability needed, our platform dramatically reduces time to market, with quick training and onboarding, meaning that administrators and managers can quickly take advantage of Private Equity retailisation.