Across Europe, asset managers are learning that selling Eltif funds to retail and wholesale investors is far harder than early optimism suggested. Fundraising momentum has slowed sharply as distributors struggle with complex product mechanics, opaque liquidity rules and limited investor appetite.
Even in Germany and France, considered core markets for semi-liquid funds, vehicles that blend liquid and illiquid holdings, demand has fallen short of expectations.
The findings come from a new EY Luxembourg study on semi-liquid products, which shows that the post-launch enthusiasm around Eltif 2.0 has given way to hesitation. Asset managers and distributors report uneven investor engagement, weak sales through retail platforms and growing concern about whether the structure suits its intended audience.
Lessons-learned moment
“We are now two years into Eltif 2.0. Now is the moment for lessons learned,” said Norman Finster, partner at EY Luxembourg, in an interview with Investment Officer. “What is the right choice for which type of investor? Is it the Eltif, or is it the UCI Part II?”
UCI Part II is an established Luxembourg fund vehicle that lets high-net-worth investors build exposure to private markets but does not benefit from the same EU cross-border passporting like the Eltif. Many of the new Eltifs however are targeting the wholesale retail part of the market.
Finster said it is “too early to see withdrawals,” but he already expects “some consolidation and liquidation” as smaller products face viability issues. Even asset managers with access to large wholesale retail distribution networks are facing issues to raise significant amounts of capital, while operating expenses for semi-liquid products are high.
“We are now two years into Eltif 2.0. Now is the moment for lessons learned.”
Many Eltifs carry a total expense ratio (TER), the annual percentage cost charged to investors, of close to 3 percent. By comparison, a typical TER below 1 percent is considered good: index funds and ETFs often charge less than 0.5 percent, while most actively managed funds fall between 0.5 and 1.5 percent. “That’s quite a challenge,” Finster said, “especially with interest rates at three to four percent. It raises the question of how to convince investors.”
Fundraising meanwhile is proving challenging. Even the most established distribution platforms have struggled to attract meaningful volumes. One widely marketed Eltif has gathered around 200 million euros, while another raised only a single-digit million sum before stalling.
Private-market ETFs on the horizon
Industry observers expect innovation to follow. Finster believes the next generation of products could resemble “ETF-like structures that mimic alternative-asset performance with total return swaps” but are cheaper and easier to hold through mainstream retail channels. Such a shift, he said, would reflect investors’ growing preference for simpler, more transparent wrappers that can bridge private-market exposure with daily liquidity.
Eltif 2.0, which took effect in January 2024, was meant to realise the EU’s ambition to democratise private markets, allowing individuals to invest alongside institutions in long-term assets such as infrastructure, private credit and real estate. It broadened the eligible-asset universe, relaxed diversification rules and simplified retail access.
Financial literacy
Yet uptake remains slow. Even with the regulatory overhaul, distribution bottlenecks and low financial literacy continue to weigh on demand. Finster notes that retail distribution of alternative products “is still in its infancy.” He describes clients who struggle with the fine print, such as for instance, monthly redemptions that require twelve months’ notice and liquidity gates that can delay payments when too many investors seek to redeem at once.
The findings in EY’s survey underline the scale of the challenge. Retail investors still hold about 40 percent of their financial wealth in bank deposits, compared with 16 percent in the United States. Even in the U.S., where financial literacy among investors is higher and defined-contribution plans such as 401(k)s are now being opened to private-market investments, both retail and wholesale investors are reluctant to including private assets in their portfolios. Finster observed that even the most prominent U.S. wealth-management players are only just beginning to make private-market products available to individual clients.
Luxembourg
Luxembourg has established itself as Europe’s main hub for Eltif funds, offering a Ucits-style passport that enables distribution across the EU and into global private-banking networks. The country’s ecosystem, from legal structuring and depositaries to transfer agents and data platforms, has made it the operational centre of the European semi-liquid universe.
According to the CSSF, Luxembourg hosts 91 Eltif funds with 142 sub-funds as of September 2025, including 38 new authorisations between January and October. The pipeline confirms Luxembourg’s leadership but also shows how limited the overall Eltif footprint remains across Europe.
National incentives
Incentives still drive investor behaviour. Italy’s capital-gains-tax exemption, which spares investors from paying tax on profits if they hold Eltifs for at least five years, has fuelled steady inflows. France offers similar advantages when French-domiciled Eltifs are held within long-term insurance policies. Germany, despite being Europe’s largest wealth market, provides no comparable incentive, which is seen as one reason fundraising there has lagged. Both Italy and France use these measures to channel household savings into productive long-term investment.
The next phase, Finster suggested, will reward those who rethink product design, align liquidity with return expectations, and invest in education.
The Eltif remains relevant in Europe’s wealth-management toolkit, but hopes for a retail revolution appear premature. The next phase, Finster suggested, will reward those who rethink product design, align liquidity with return expectations, and invest in education.
“If investors become more mature,” he said, “they will also ask for products that articulate the true benefits of alternatives, and accept that long-term investing means staying the course.”