The revised ELTIF 2.0 (European Long-Term Investment Fund), launching January 2024, aims to increase accessibility to private assets. To achieve this goal, the new regulation broadens the definition of an eligible asset and removes restrictions formerly placed on individual investors such as the EUR 10,000 minimum investment requirement.

The ELTIF 2.0 is a positive development for the high-net-worth investor base, but without industry-wide technological infrastructure to support increasing volumes of investors, managers will struggle to meet demand.

In this article, we examine the benefits of the ELTIF 2.0 and explore the challenges that may arise for managers as a result of it. Technological innovation, we explain, is crucial to overcoming these challenges and therefore maximising the potential of this new regulation to democratise private assets on an unprecedented scale.

What is the ELTIF 2.0?

The original ELTIF was launched in 2015 with the aim of increasing long-term investment in private assets by broadening the marketing audience across EU member states, under a marketing passport, to include individual investors.

Despite being well-received by the industry in principle, it failed to achieve widespread adoption; by January 2023, eight years after the ELTIF was launched, the ESMA ELTIF register only referred to 84 ELTIFs.

The new ELTIF 2.0 aims to address the restrictions that still hinder retail investors under the original ELTIF with several key updates:

• Redefining eligibility: The definition of an eligible asset is broadened to include EU AIFs (Alternative Investment Funds) managed by EU AIFMs (Alternative Investment Fund Managers) and invested in ELTIF-eligible assets; simple, transparent, and standardised securitisations; and certain green bonds.
• Reducing investment restrictions: The mandated minimum investment in eligible assets is reduced from 70% to 55%; fund of fund strategies are permitted; and master-feeder ELTIFs are permitted.
• Opening access to retail investors: The EUR 10,000 minimum investment requirement is removed; the 10% cap on financial instrument portfolios not exceeding EUR 500,000 for retail investors is removed; and the local facilities requirement is removed.
• Creating open-ended ELTIFs: The mandatory lock-up of ELTIFs during the ramp-up period is removed, and the lock-up period may be shortened.

New regulation creates new challenges

With restrictions reduced, individual investors can enjoy greater access to private assets. Managers, in turn, benefit from a diversified investor base and more capital-raising opportunities.

However, with increased opportunities come increased challenges as managers face pressure from higher volumes of individual investors demanding access to private markets. Operationally, high-net-worth clients act differently to institutional clients, and it is important that managers understand their needs and have systems in place to manage them.

One key challenge is scalability. Many managers are still reliant on manual or paper-based processing when onboarding clients. This may have worked for small numbers of large institutions but is unlikely to impress the increasingly tech-savvy individual investor community. Moreover, manual processes cannot scale to meet demand. Therefore, it is crucial that managers adopt scalable, digitised solutions to investor onboarding.

Increasing scalability through digitisation

While the ELTIF 2.0 provides the framework to facilitate access to private assets for a growing investor base, several key actions need to be taken to maximise on this potential.

First, private funds need to become more accessible and user-friendly for individual investors looking to make allocations. This can be achieved through the development of market infrastructure that allows distributors to access private funds in the same way they currently do mutual funds and exchange traded funds.

Second, asset managers need to be supported by this same market infrastructure to distribute their private funds at scale. This involves an entirely digitised investment journey, with an emphasis on efficient and scalable investor onboarding, and an aggregation service where smaller allocations from individual investors can be pooled together into one subscription.

FundSettle: providing a scalable solution

Euroclear’s FundSettle platform, now enhanced with Goji’s private fund capabilities and expertise, allows managers to distribute their private funds at scale. Consequently, asset managers can tap into the increased capital available from high-net-worth investors facilitated by new ELTIF 2.0 regulations.

Through FundSettle, managers can access Euroclear’s existing network of more than 2,000 distributors via their FundSettle account, making their private funds discoverable to a deep and diverse pool of investors.

For the distributors in Euroclear’s network, access to private funds is facilitated by a single-entry point for both institutional and individual clients. This is done via their existing FundSettle account, meaning they do not need to adopt new technology or processes to access private funds. Rather, they can do so in the same way that they would normally access mutual funds.

Fund managers and distributors can also leverage global distribution agreements as part of Euroclear’s funds offering. This creates legal efficiency and scalable distribution, as fund managers can distribute to more private banks and wealth managers, and distributors can offer an ELTIF to clients without needing to sign a new agreement.

With streamlined processes provided through digitised market infrastructure, asset managers can take full advantage of new ELTIF 2.0 regulations and tap into the widening investor base. Not only does this solution help the private markets industry grow its AuM, but it allows investors to diversify their return and risk profiles at a time when markets are becoming increasingly unpredictable.

If you would like to learn more about how Euroclear and Goji can support you in launching an ELTIF 2.0, get in touch using our contact form.