European Long-Term Investment Funds (ELTIFs) open up a whole investment world beyond the stock markets for private investors. Whether private equity, infrastructure investments or real estate projects – the barriers to the private markets are falling.
“New rules have recently come into force that make ELTIFs more attractive for private investors”, says Michael Patzelt, Head of Sales for the DACH region at Moventum. “That’s why we are now working closely with Schroders Capital on the first ELTIF”, says Patzelt, who expects significant growth for the market.
ELTIFs were introduced by the EU back in 2015 to give private investors access to investments that are not traded on the stock exchange: Private equity, private debt, infrastructure projects such as roads, wind farms, power and fiber optic lines or real estate. The real economy, in turn, receives funds for long-term investments via ELTIFs.
“Previously, there were hardly any opportunities for private investors to invest in such assets”, explains Patzelt.
The difference between ELTIFs and investment funds in accordance with the requirements of the UCITS Directive lies primarily in the long-term nature of the investment.
New rules have just come into force that make these multi-asset funds even more attractive and accessible. While ELTIFs were previously relatively illiquid compared to listed investments – they are not traded on a daily basis – this is now set to change according to the RTS document from the European Securities and Markets Authority (ESMA) dated December 19, 2023.
In future, holding periods and rules for the redemption of fund units may be structured differently depending on the product. “It is planned that there will even be daily redemption options, but also clear liquidity requirements”, saidPatzelt. This will open the door to above-average returns for private investors in the future, which are now often achieved outside the stock markets.
“If the returns are right, ELTIFs have the chance to become a genuine, sustainable form of investment”, said Patzelt.
The new rules have also changed the quota for permissible forms of investment, which has been reduced from 70 to 55%. The diversification ratios have also changed: A single tangible asset may now make up 20 percent of the overall portfolio instead of just ten percent as before.
Furthermore, the permissible leverage ratio for products sold to non-professional investors has been increased from 30 to 50 percent and funds of funds are also possible.
For retail investors, the minimum investment amount of EUR 10,000 and the requirement that they may only invest ten percent of their money in ELTIFs have been abolished. This limit was linked to an asset test, which has now been abolished, as has a separate suitability test. “This makes ELTIFs accessible to people with smaller investment sums and thus virtually democratizes them”, explains Patzelt, who assumes that the number of
ELTIFs on offer will more than double in the medium term.
ELTIFs will then be structured differently, have different maturities, different notice periods or redemption dates.
“Thanks to the broad investment spectrum, ELTIFs can represent an alternative to other funds in the AIFM sector, among others, in the future”, predicts Patzelt and expects the market volume to grow fivefold over the next three years. “Well-structured ELTIFs with access to large investment assets can expect strong growth”, says Patzelt.
