ELTIF: a perfect vehicle for an ambitious asset class

At 40 years of age, Invest Europe is still young at heart - and so is the industry that it represents. With a history slightly longer than the age of our Association, private equity and venture capital may no longer be the youngest of the financial services, but the industry is mature enough to understand new ground and still have the legs to walk it.

Indeed, the private equity model is at a stage where it is still pushing the limits of its potential. Not just because of the fundraising records it has recently broken - see our Activity Data - but also because it is still daring to try new things.

One of the recent trends in our long-term asset class has been the "democratisation" of access to the asset class. Historically, the closed-end funds set up by venture, growth or buyout structures have been offered primarily to institutional investors, if only because of the natural liquidity constraints of an active ownership model. In recent years, however, more and more managers have begun to consider solutions to offer their products to non-institutional but still sophisticated investors, such as high-net-worth individuals.

In doing so, they faced new hurdles.

Some of these barriers were business constraints. Others were regulatory as marketing to non-professional clients is subject to stricter rules in any jurisdiction and, in some cases, outright bans.

This is where the European Long Term Investment Fund (ELTIF), an EU retail fund marketing label available to AIFMD authorised managers, comes in. The review of the ELTIF framework launched two years ago and recently concluded with a vote in the European Parliament on 15 February 2023, and significantly improves the - hitherto largely unused - passport that allows AIFMD authorised managers to market their funds to non-professional clients.

The updated passport, with a wider range of eligible investments and a larger pool of eligible investors, will become fully applicable at the beginning of next year, although managers may be able to use it now.

To help navigate the intricacies of this new passport, Invest Europe has this month produced a new guide, ELTIF Essentials, with the help of four law firms. The guide, which is available here, is open and accessible to all members of Invest Europe.

The new and improved ELTIF can be seen by the industry as one of the most important missing pieces in the puzzle of cross-border fundraising in the EU. It is the only way for any non-venture manager* to market to non-professional clients not based in the same country as the manager.

It is too early to say how successful the new ELTIF will be. This will depend on several circumstances beyond the industry's appetite for new markets. Among the potential factors that will determine the ultimate take-up of the product are the ongoing negotiations on the liquidity provisions to which ELTIFs will be subject.

In the ongoing technical negotiations, we will seek to ensure that no standardised minimum holding period is imposed on all funds and that redemption procedures can include mechanisms such as ‘soft locks’.

Finally, the attitude of national competent authorities in approving new ELTIFs and whether they will prevent the use of ELTIFs by imposing additional requirements will also be crucial - Invest Europe will be monitoring this closely.

Ultimately, the future of ELTIF is in the hands of the industry. May it be seen as an anniversary gift well deserved!

*Venture or growth funds authorised under the EuVECA can be marketed to investors who commit more than 100k and state in writing they are aware of the risks.