There has been much excitement in the European asset management industry in the last number of months with respect to the implementation of the revised ELTIF Regulation¹ or ELTIF 2.0 as it has become commonly known. When first introduced in 2015 the goal of the ELTIF Regulation was to facilitate the establishment of the European Long Term Investment Fund or the ELTIF as a new type of EU domiciled investment fund that could help improve the financing of EU companies and projects that need long-term capital but which did not have access to the public capital markets. However, following its introduction in 2015, only a modest number of ELTIFs were established in a small number of EU jurisdictions due to several restrictive features of the original ELTIF Regulation. That is set to change. Supported by political will at EU level to provide an alternative source of non-bank financing to fund the EU real economy, a desire by managers in the private assets space to diversify their investor base and an increasingly sophisticated non-institutional or “retail” investor cohort looking to allocate to private assets, the new and improved ELTIF 2.0 entered into force on 10 January 2024.

Originally, take-up of the ELTIF was hampered by complex and restrictive rules particularly relating to eligible assets and portfolio composition.

The changes introduced by ELTIF 2.0 relating to eligible assets and portfolio composition have been broadly welcomed by the asset management industry as they allow for more flexible rules around minimum investments in eligible investment assets (now set at 55%), a broader definition of “real assets” and a wider range of eligible investments to include investment in assets located in eligible third countries, listed companies with market capitalisation of up to Euro 1.5 billion, Green Bonds and certain types of securitisations which are standardised, simple and transparent securitisations under the Securitisation Regulation². Another welcome move is the ability under ELTIF 2.0 for ELTIFs to pursue fund of fund strategies investing and for ELTIFS to be established as master feeder structures.

However, it is perhaps the ability to market to both professional and “retail” investors cross border within the EEA under a single EU passport that is presenting the greatest opportunities in the asset management community as managers seek to cast their net wider in terms of target investors. ELTIF 2.0 sees the creation of a differentiated regime between ELTIFs which will be solely marketed to professional investors and ELTIFs that can be sold to both “retail” and professional investors. The expansion of the potential client base to “retail investors” has been further aided by the simplification of the access requirements applicable to retail investors including the removal of both the €10,000 initial investment requirement and the removal of the maximum 10% aggregate threshold requirement for retail investors whose portfolios are below €500,000.

Additionally in order to manage risk taking by “retail” investors, those ELTIFs being marketed to “retail” investors will be subject to some additional requirements with respect to portfolio composition, diversification limits and concentration limits e.g., a prohibition on investing more than 20% of the ELTIF’s capital in any instruments issued by or loans granted to a single qualified portfolio undertaking, any single real asset or any single fund-type entity. ELTIF 2.0 also introduces increased borrowing limits which will be calibrated depending on whether the ELTIF will be made available to “retail” investors.

While it is expected that asset managers in the private assets space will be the first movers to utilise the ELTIF to bring their product to a previously untapped “retail” market, there is certainly opportunity for those managers who perhaps have not had a traditional foothold in the private markets but which do have knowledge and expertise on how to bring a product to a broader non-institutional investor base through existing distribution networks. While the cohort of “retail” investors to be targeted for the ELTIF are likely to be comprised of high-net worth (HNW) individuals who are typically advised there is a sense that some level of liquidity will be important for these investors. ELTIF 2.0 will provide that level of flexibility in product design to enable asset managers to launch a closed-ended fund or more liquid product allowing for investor redemptions in a way that ensures that the ELTIF meets the needs of its target investor cohort.

Under the ELTIF Regulation, ESMA has been tasked with developing a suite of regulatory technical standards (RTS) which will address the required liquidity parameters for such liquid assets and those are expected to be finalised in Q3 or Q4 of 2024. In recent correspondence issued by the European Commission to ESMA on those draft liquidity regulatory technical standards (RTS) it is clear that the political will is to ensure that the liquidity framework is suitably calibrated for the broad spectrum of ELTIFs that may be established.

Ireland as a jurisdiction is primed and ready for the establishment of the new ELTIF. The Central Bank has now published its revised AIF Rulebook which includes a standalone chapter setting out the Central Bank’s operational requirements with respect to the establishment of the ELTIF.

ELTIFs in Ireland will benefit from their dual authorisation under the ELTIF regime and the domestic Irish funds regime together with an open and engaged regulator focused on implementing ELTIF 2.0 in a robust but effective manner without gold plating any of the ELTIF product rules.

Equally the quality, responsiveness and expertise of the Irish funds industry in funds investing in long-term assets as well as Ireland’s position as an English-speaking common-law jurisdiction are expected to act as key drivers for managers choosing Ireland as a domicile for their ELTIF. The democratisation of private assets using the Irish ELTIF is well underway.