Aztec Group – How ELTIF 2.0 is likely to accelerate fund raising opportunities

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Article by Aztec Group

1. A breakdown of ELTIF 2.0’s key regulatory changes, mainly to facilitate accessibility to new investors, including retail.
2. Analysis of what industry focus and education is needed to drive uptake.
3. Insight from those who’ve raised ELTIFs and immediate opportunities to open up private market investments.

 

The European Long Term Investment Fund’s (ELTIF) take up since the regulations came into force in 2015 has been unimpressive. However, the updated regulations, which will apply from 10 January 2024, are set to give a considerable boost to the attractiveness of the ELTIF as a vehicle for retail type investors looking to gain access to private market investments that have historically been the preserve of institutional investors.

Regulators in the core European jurisdictions are gearing up for what is expected to be a steady and increasing flow of retail-focussed private market investments.

The Central Bank of Ireland (CBI) announced in September that the country would be ‘ELTIF-ready’ by 10 January 2024. The CBI has streamlined the process of structuring for fund managers, for example, with a shortened consultation time and a standalone chapter in the AIF (alternative investment funds) handbook. Similarly, the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg expects the new regulations to further enhance the Private Markets offering in the Grand Duchy.

Ireland and Luxembourg’s long-standing reputations in the market as well as their highly skilled workforces already make them attractive domicile choices for fund managers. This smoothing of the way for ELTIFs is likely to accelerate interest in both jurisdictions for servicing these types of funds.

One of the stated outcomes for ELTIFs was to democratise private markets, and the European ELTIF Study by Scope, released in March 2023, found that the uptake in ELTIFs has increased 50% year-on-year, granted from a small base, and put the volume at EUR11.3 billion at the end of 2022. This clearly shows there is growing demand from a hungry retail investor pool. Also, governments across Europe have to find solutions to manage the challenges of an ageing population, which means individuals need to pick up the slack in funding their own pension requirements.

The upcoming amendment – dubbed ELTIF 2.0 – which came into force on 9th April 2023, but applies from 10 January 2024, is expected to further improve the use of ELTIFs in expanding fund managers’ access to wider pools of capital looking to invest into private markets, in particular, responding to a growing appetite for Private Credit which offers liquidity for investor calls. It will also allow the conversion of existing ELTIFs to ELTIF 2.0 with regulatory approval.