The revised European Long-Term Investment Fund (ELTIF 2.0) was launched on 10 January 2024 as a significant update to the original ELTIF introduced in 2015, say Melville Rodrigues, Head of Real Assets and Agnes Mazurek, Global Head of Product - Private Debt at Apex Group.

Designed to make private market investments more attractive to retail investors, this new version includes welcome regulatory updates to enhance liquidity and broaden investment opportunities compared to the original ELTIF. ELTIF 2.0 represents a significant step toward democratising private markets.

However, ELTIF 2.0 has had a slow take-up, with fund managers having to wait more than 10 months for the regulatory technical standards.

Clearing the path for ELTIF 2.0

The regulatory technical standards introduced in October 2024 are important as they provide much-needed clarity and guidance for both fund managers and investors. These standards address key operational aspects of ELTIFs, in particular liquidity management rules. Private market portfolios are naturally illiquid. Additionally, the combination of illiquid assets with a retail investor base creates a risk of mismatch that must be managed carefully.

Fixing the framework

In addition, to ensure widespread adoption of ELTIF 2.0, it is crucial to address certain operational and distribution challenges. This fund structure is unique because it combines elements from both closed-ended and open-ended environments.

However, most investment and fund administration systems are designed for only one of these systems, making it challenging to produce automated NAV calculations seamlessly for portfolios that include both illiquid assets and liquid investor features.

Furthermore, the onboarding processes and carrying out of Know Your Customer (KYC) and Anti-Money Laundering (AML) checks for retail investors introduce another layer of complexity.

It is essential, therefore, to focus on the target operating model and, where possible, adapt existing systems to accommodate the specific demands of ELTIF to ensure robust delivery. Compounding this is the fact that many fund managers are primarily experienced in institutional sales, which means this is a new landscape. They must understand and cater to retail investors' distinct needs and expectations which requires a significant shift in strategy and resources.

There also needs to be the distribution infrastructure in domestic markets that onboards ELTIF 2.0.

Opening the doors to private markets

ELTIF 2.0 is part of a broader trend aimed at democratising access to private markets. It joins other innovations, such as fund tokenisation, in bringing investment opportunities traditionally reserved for institutional investors into the retail space. ELTIFs can empower a wider range of investors to participate in private markets.

The legal framework and structure of ELTIFs play a crucial role in advancing this trend. Strong investor protection measures - including diversification requirements, risk management guidelines, and restrictions on leverage - help mitigate risks for investors and will promote responsible investment practices. The regulatory framework provides certainty for both fund managers and investors, creating a favourable environment for the growth of the ELTIF market.

Adoption is key. One year on from its launch, and with the regulatory technical standards now clarified, managers must embrace ELTIF 2.0 to unlock its full potential.

Charting the future path

Hopefully, expanded distribution channels will drive the growth of ELTIF 2.0 during 2025 and beyond. As this fund gains wider adoption, its ability to create new investment opportunities for retail investors will continue to increase.

By Melville Rodrigues, Head of Real Assets and Agnes Mazurek, Global Head of Product - Private Debt at Apex Group