ELTIF reform opens door to enormous potential of private capital market – opportunity for all market participants

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Published on 4. April 2023
Private investors hold 50 percent of assets under management worldwide, but only 16 percent in the lucrative alternative investment funds market (sources: Preqin and Bain & Company). Whereas access to alternative investments or to the private capital market in general was previously very limited for non-institutional investors, the reform of the European Long-Term Investment Funds (ELTIF) opens a door and thus offers asset managers, fund companies, and wealth managers the opportunity to jointly leverage this enormous potential. In this win-win situation wealthy individual investors will gain access to the private capital market, which historically delivers higher returns than the public capital market.

ELTIFs: EUR 1 trillion potential 

The European Fund and Asset Management Association (EFAMA) explicitly welcomes the new regulation as “access to the virtually untapped retail market,” as Antoine de la Guéronniere, Deputy Chairman EFAMA, explains.

With the ELTIF introduction in 2015, the EU wanted to enable both financial participation and the financing of investments needed for the urgently pending structural change in Europe. As the name suggests, this financial vehicle is intended to promote long-term growth and innovation, especially in the areas of sustainability, infrastructure, and digitalization—the European Green Deal. However, the well-intentioned program has so far been adapted rather slowly due to excessively high financial entry hurdles, broad investment restrictions for the funds, and complicated advisory requirements.  

New momentum following the ELTIF reform 

With the ELTIF reform passed in mid-February the European Parliament is now introducing the necessary changes. There is widespread agreement among market participants that this should give the market a real boost: while consultations on the reform were still ongoing, strategy consultant Indefi already identified a growth in alternative assets in Europe from EUR 360 billion (2020) to EUR 680 billion (2025) spurred by ELTIFs. In 2021, only about EUR 2.4 billion were invested through the financial instrument ELTIF, according to the EU Parliament. With access to the private capital market now simplified, the door will be opened for significantly higher investments.

As a result of an increase in leeway for issuers, there is already noticeable momentum in the approval of new ELTIFs: International heavyweights such as BlackRock and Schroders Capital have already launched or announced new products aimed at individual investors—and with the cooperative Union Investment, Germany’s largest fund company by assets under management, the reform also leads to the public banking sector opening itself up to the ELTIF market. Offerings are therefore becoming broader and so are the investor groups addressed.

More providers, more products, more investors

Until now, ELTIFs were only accessible to institutional and particularly wealthy private investors. The recent amendments remove several hurdles for individual investors, such as the EUR 10k minimum investment for investors with at least EUR 100k in available invested assets. While the brokerage of products was previously held back by complex advisory hurdles and manual efforts required to process the documents, this gets much easier thanks to the reduced advisory service, which is now MiFID II-compliant only, and new digital offers in sales and settlement.  

Thus, the revised ELTIF Regulation results in benefits for all: for investors, issuers, and advisors a new market with enormous potential will be opened!