European Union rolls out ELTIF 2.0 structure

Kellie Ell

Reporter

The European Union’s latest regulations for its long-term investment funds — known as ELTIF 2.0 — went into effect on 10 January, ousting the old model to make it easier for both alternative investment managers and retail investors alike to tap into the market.

“ELTIF 1.0 looked great on paper, but was limited in practice,” says Michael Huertas, head of financial institutions regulatory Europe at PwC. “It didn’t make life a lot easier for investors looking to move money into those funds that benefited from the ELTIF designation. And there wasn’t much attraction for fund managers to set up funds.”

In February 2023, the European Parliament voted to make revisions. ELTIF 2.0 streamlines the investment process by cutting down on restrictions and widening the scope of eligible investment assets.

“The change from 1.0 to 2.0 is more about tweaking the existing rules, as opposed to scrapping concepts wholesale,” says Huertas, who is based in Frankfurt. “And it’s about making the supervisory process a little bit more workable.”

ELTIF 2.0’s changes include eliminating both the minimum investment threshold and the requirement that real assets are owned directly by qualifying portfolios, while expanding the eligible assets in which an ELTIF designation can invest.

The new model also updates preconditions on real assets. In the past, they had to have “an economic or social benefit”.

At the same time, the market capitalisation threshold for qualifying portfolios has increased from EUR 500m to EUR 1.5bn, to provide more liquidity within each ELTIF.

The new regulation updates the original ELTIF, established in 2015. These regulated funds were open to both institutional investors and retail investors. The hope was to create a capital markets system across Europe’s 27 member states with the same degree of liquidity and ease for cross-border transactions as in the US. But it didn’t take long for issues to arise.

“ELTIF 1.0 looked great on paper, but was very limited in practice”

Michael Huertas, Head of financial institutions regulatory | Europe PwC

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