The EU has announced that the Eltif 2.0 regulation will apply from January 10, 2024, in line with industry expectations.
The revised rules for the Eltif – or European Long-term Investment Funds – are designed to increase participation by retail investors in finance, such as through private equity, which is traditionally the domain of wealthy investors and institutions.
The UK’s Financial Conduct Authority recently approved the first LTAF – a similar UK fund vehicle known fully as the Long-term Asset Fund – for fund manager Schroders.
Since the Eltif regulation was first adopted in 2015, few Eltif funds have been launched, and the market “has not scaled up as expected, despite the Union’s focus on promoting long-term finance in the Union”, the EU said.
The aggregate net assets in Eltifs was estimated at around €2.4 billion.
In the Official Publication of the European Union, the EU says: “Certain characteristics of the Eltif market, including the low number of funds, the small net asset size, the low number of jurisdictions in which Etifs are domiciled and a portfolio composition that is skewed towards certain eligible investment categories, demonstrate the concentrated nature of that market, both geographically and in terms of investment type.
“Moreover, there appears to be a lack of awareness and financial literacy, as well as, most importantly, low levels of trust and reliability as regards the finance industry, that need to be overcome in order to make Eltifs more accessible and popular among retail investors.”
Changes include allowing Eltifs to invest in funds-of-funds for more rapid capital deployment.
Silke Bernard, global head of investment funds at Linklaters in Luxembourg, said: “Eltif 2.0 will be a real game changer in channelling private money into alternative assets. More Eltif projects are launching than ever before and an increasing number of asset managers are seeing the value in offering private assets to retail investors.”
However, she added that many private equity firms and financial sponsors are not used to working with the small amounts of money associated with retail investors, or carrying out know-your-customer due dilligence for them.
"Two new worlds are opening up - retail and regulators - and there has been a lot of education involved. Understanding how the regulator believes that retail investors can understand whether disclosures are clear enough, for example."
But the rules are "much smoother" with Eltif 2.0.
"Some of the real difficulties related to the interpretation of the text have disappeared [and] some well-intended legal texts that didn’t match reality. Legal requirements that simply didn’t work. Quite a number of them have gone away because Brussels listened to the industry and delivered.”
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