Key takeaways

  • New rules are coming into force in early 2024 to attract more retail investors to ELTIFs, offering them new investment opportunities in private markets.
  • The changes include removing investment minimums and caps on how much retail investors can commit to ELTIFs, a broadening of the range of investments ELTIFs can make and rules that allow the creation of more diversified structures via funds of funds.
  • The new ELTIFs will have features designed to protect retail investors, including a cooling off period, diversification requirements and leverage limits.

Retail investors could be set to benefit from new opportunities to access private markets as far-reaching reforms to the European Long-Term Investment Fund (ELTIF) — known as ‘ELTIF 2.0’ — come into effect in early 2024. 

Launched in 2015, ELTIFs were designed for both professional and retail investors as a way of channelling more non-bank funding to Europe’s companies and projects through private equity, infrastructure, private credit and real estate investments.

However, as it became increasingly clear that the original ELTIF regulation  was not fulfilling this objective, the European Commission initiated a review in 2020. It concluded that legislation governing these funds had turned out to be too restrictive and prescriptive for firms to be sufficiently interested in launching ELTIFs and for investors to participate.¹ 

Indeed, to date, fewer than 100 ELTIF funds have launched, all with relatively modest assets under management and concentrated in just a handful of markets – Luxembourg, France, Italy and Spain.²

Source: ESMA, Scope Group, as of December 2023

What’s new in ELTIF 2.0: more investment options and liquidity, no more minimums 

The review prompted sweeping changes to the rules governing ELTIFs, approved by the European Parliament earlier this year. When they come into effect in the first quarter of 2024, ELTIF 2.0 rules will allow for a broader range of investments including other funds and funds of funds, partially increase liquidity and remove the requirement for retail investors to have at least €100,000 of liquid investments to be able to participate. 

The revisions to the framework also remove the €10,000 minimum investment per ELTIF and the cap of 10% of a retail investor’s capital on ELTIF investments. All these will open up ELTIFs to a wider retail investor base.

Overall, the reforms aim to increase the range of investments and reduce barriers for retail investors. The result could be up to €100 billion of new investment in ELTIFs over the next five years, according to the Alternative Investment Management Association.³

ELTIF (as introduced in 2015)ELTIF 2.0 (changes from 2024)
Strict guidelines on eligible investmentsOpportunity for minority co-investments and secondary transactions
Investment cap of 10% for retail investor portfolios equal or smaller than €500,000Removal of investment cap for retail investor portfolios
Leverage restrictions of 30% of NAV for retail investorsLeverage extended to 50% of NAV for retail investors
Close-ended structureClose-ended or semi-open ended
Min. 70% in private equity, credit, loans, real estateMin. 55% in private equity, credit, loans, real estate
Minimum investment: €10,000Removal of minimum investment

Source: GSAM 2022

Four key benefits of ELTIF 2.0 

Some of the advantages that ELTIF 2.0 will offer retail investors include:

Funds of funds as an access point

This is particularly valuable to investors with relatively small sums to invest and without the time or expertise to select suitable managers. Previously, ELTIFs only allowed for funds that would invest directly in eligible companies or projects; the new rules will allow for the creation of ELTIF funds of funds that can also invest in other EU alternative funds and UCITs, which are a type of security, operating under a European legal framework.⁵ This will offer investors an easier route to an adequately diversified portfolio and allow them to leave the research and individual fund manager selection to skilled and experienced teams.

The potential for liquidity

ELTIFs are designed to be long-term investments. However, the new ELTIF regime recognises that retail investors may sometimes need liquidity before the end of the fund’s life. It therefore allows for redemptions after an as-yet unspecified minimum holding period. It also introduces the possibility of trading ELTIF positions via the secondary market — this envisages the development of a matching mechanism for buyers’ and sellers’ transfer requests.