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The European Long-Term Investment Fund (ELTIF) is a regulatory framework designed by the European Union to promote long-term investments in the European economy.

Aimed at channeling funds towards sustainable and real economy projects, ELTIFs provide a vehicle for investors looking to commit capital over an extended period. These funds are tailored to support infrastructure projects, small and medium-sized enterprises (SMEs), and other long-term initiatives, offering an alternative investment option that aligns with the broader EU goals of smart, sustainable, and inclusive growth.

The transition to ELTIF 2.0 marks a significant shift towards enhanced flexibility and accessibility for both investors and fund managers.

The earlier ELTIF 1.0 had been rightfully criticized for its restrictive investment criteria and high entry barriers for retail investors, which limited its appeal and uptake.

ELTIF 2.0 introduced a broader scope of eligible assets, reduces minimum investment thresholds, caters to more flexibility in capital allocation strategies, and allows for greater portfolio concentration. These changes are designed to make ELTIFs more attractive to a wider range of investors, including retail investors, and to diversify the types of projects and companies that can benefit from long-term investment capital.

ELTIF 2.0 removed several main limitations for smaller retail investors. In particular, there is no statutory minimum investment amount applied per investor any more (previously EUR 10,000). At the same time, the investor suitability criteria were harmonized with the general MiFID client categorization requirements.

This means that any AIFM or financial intermediary distributing an ELTIF must only apply the MiFID II suitability criteria when considering the eligibility of individual retail investors.

ELTIF 2.0 offers sponsors the novelty to apply redemption policies for ELTIF units or shares under specific conditions after a minimum holding period. This eliminates a major limitation associated with the closed-end nature of ELTIF structures, which is anticipated to enhance both the allocation volume into ELTIFs and their liquidity.

To ensure adequacy, these redemption policies must incorporate pre-defined limitations on the percentage of assets that can be redeemed at certain times.

ELTIF 2.0 introduced a more adaptable legal framework for fund-of-funds (FoF ELTIFs) as well as master-feeder structures, heralding a new chapter in investment flexibility and accessibility.

FoF ELTIFs have now a broader investment spectrum available, allowing them to allocate capital to a diverse range of target funds. These extend beyond the traditional confines of ELTIFs, EuSEFs, and EuVECAs, to include, under specific conditions, other Alternative Investment Funds (AIFs), insofar as these are EU-based.

This opens doors for retail investors to gain indirect access to a spectrum of funds that were, until now, predominantly the domain of professional investors. This democratization of investment opportunities represents a significant stride towards inclusivity in the EU’s investment landscape.

While master-feeder structures within this context are tailored specifically for “master ELTIFs,” it’s the fund-of-funds ELTIFs that are poised to redefine investment possibilities, offering unprecedented access to a variety of investment avenues previously unexplored by retail investors.

ELTIF 2.0 offers a broadened scope of investment opportunities, redefining what fund managers can nest in their baskets.

• Inclusion of Fintechs and Green Bonds: A welcome move that diversifies investment opportunities.
• Higher Market Capitalization for Listed Qualifying Companies: Raised from €500M to €1.5B, offering a better liquidity profile.
• Broadened Asset Eligibility: ELTIF 2.0 removes the €10M minimum value for real assets, embracing a wider range of assets with intrinsic value.

While the initial exploration of ELTIF 2.0 reveals a wealth of opportunities, the journey within this legislative framework progresses as the market anticipates the finalization of ESMA’s Level 2 Regulatory Technical Standards (RTS).

These forthcoming standards are set to further illuminate the operational facets of the legislation, empowering all participants to adeptly navigate this enhanced investment terrain.

Fund managers looking to make the most of ELTIF 2.0 should begin by familiarizing themselves with the expanded eligibility criteria and considering how these can fit into their current investment strategies.

With Ireland and Luxembourg positioning themselves as favorable domiciles for ELTIF launches, managers should also consider the geographic implications of their fund structures.

1. Diversified Investment Opportunities: ELTIFs allow investors to diversify their portfolios by investing in long-term projects and companies that are not typically accessible through traditional investment funds. This includes infrastructure, real estate, and small and medium-sized enterprises (SMEs).

2. Stimulates Economic Growth: By channeling capital towards long-term, real-economy projects, ELTIFs play a crucial role in stimulating economic growth and job creation within the European Union.

3. Access to Retail Investors: ELTIF 2.0 has significantly lowered entry barriers for retail investors, offering them a chance to participate in long-term investment opportunities previously reserved for institutional or professional investors.

4. Regulatory Oversight: As a regulated investment product, ELTIFs offer a level of investor protection through compliance with EU regulations, ensuring transparency and accountability in fund management.

5. Potential Tax Advantages: Depending on the investor’s jurisdiction, investing in an ELTIF can offer potential tax benefits, making it an attractive option for optimizing post-tax returns.

ACE Alternatives (“ACE”) is a leader in managed services in the Alternative Assets sector like venture capital, private equity, fund of funds, real estate, and more. Leveraging a proprietary tech platform and extensive industry experience, ACE offers 360 degree tailored solutions for fund administration, compliance and regulatory, tax and accounting, investor onboarding and ESG needs. The fintech was founded in Berlin in 2021 and has since established itself as one of the fastest growing alternative investment fund service providers in Europe. ACE is currently used by over 45 funds. In 2024, ACE received seven-figure funding from Bob Kneip to expand into new markets. ACE’s vision is to redefine fund management by demystifying complexities and promoting transparency.