Why was the ELTIF reformed?
The ELTIF was reformed because the original set of rules blocked its own objectives. By the end of 2022, there were only 77 ELTIFs across Europe with a volume of around EUR 11 to 12 billion. For retail investors, access to high minimum investments and asset thresholds was linked, while for fund providers, the requirements for assets and diversification were too tight. With ELTIF 2.0, the EU has reduced these hurdles as of 10 January 2024.
With the ELTIF (Long-Term Investment Fund), the EU launched a brand new financial instrument in 2015. The ELTIF was designed to make it easier for investors to invest their money directly in the European real economy - for example, in projects in the areas of infrastructure, real estate and renewable energies, as well as private equity and private debt.
ELTIFs were thus designed as a bridge between the real economy and the financial market. Until now, access to areas such as infrastructure, private debt or private equity has mainly been restricted to institutional investors or very wealthy customers. Private investors, on the other hand, had hardly any opportunity to invest their capital in the real economy without detours before the ELTIF was launched. The ELTIF should provide a remedy here and also enable private investors to access innovative investments in tangible assets.
However, despite the visible growth of the ELTIF market, the development and popularity of the new investment product fell far short of expectations.
The difficulty lies mainly in the strict regulations: This is because the ELTIF has been equipped with a comprehensive set of rules to protect investors. For example, private investors were allowed to invest at least EUR 10,000 but no more than 10% of their net assets. This means that Private investors had to have net assets of at least EUR 100,000 to be able to invest in ELTIFs. Those with more than EUR 500,000 in liquid assets were also allowed to invest more than 10% in ELTIFs.
This has paralysed the dynamics in the ELTIF market, especially for retail investors. The potential that the financial instrument actually offers was therefore far from being exploited. The EU has recognised this and adopted a comprehensive ELTIF update on 10 January 2024 - the ELTIF 2.0.
The new regime became fully operational with the final regulatory technical standards that entered into force in October 2024.