Nearly a decade after the European Long-Term Investment Fund (Eltif) made its initial, albeit underwhelming, debut, Natixis Investment Managers heralds the arrival of its successor, Eltif 2.0. “The threshold reduction is a gamechanger,” said Anne Macey, Natixis’ Global Head of Public Affairs, in a note to investors.
Perhaps the most significant evolution of the Eltif is the democratisation of private asset ownership. The troublesome 10,000 euro threshold has been removed, as has the 10 percent exposure cap to real assets for investors with less than 500,000 euro to spare.
“Retail investors can now invest from zero capital upwards, with strong investor protections still in place,” said Macey. Eltif 2.0 aligns to the investor protection tenets established in MiFiD II. “The very fact retail investors fully understand that these are long-term investments is protection in itself.”
Eltif 1.0 launched in December 2015 with ambitious goals but faltered, raising a modest 2.4 billion euro and finding a home in just four countries. Hindered by stringent national restrictions and a prohibitive minimum investment threshold, it failed to democratise access to private markets for retail investors. In response, the European investment community, alongside policymakers, embarked on a mission to refine and relaunch the Eltif framework.
Mobilising investment for real economy
This evolution marks a significant stride towards mobilising investment across the European Union’s real economy sectors, including infrastructure, sustainable ventures, and SMEs.
Enter Eltif 2.0 in January 2024, embodying flexibility and inclusivity. Macey champions the overhauled fund, emphasising its expanded asset eligibility, including green bonds and fintechs, and its relaxed investor access criteria. The removal of the onerous entry barrier for retail investors has been eliminated, promising a broader demographic the opportunity to invest in private markets.
This sentiment is echoed by the rapid uptake among the investment community, with the number of registered Eltifs nearly doubling within a year. Eltif 2.0 not only broadens the spectrum of eligible investments but also introduces a more lenient portfolio composition and diversification, incorporating a liquid investments pocket of up to 45 percent.
Despite its promising features, Eltif 2.0 faces challenges, particularly regarding its redemption policy. The European Securities and Markets Authority (Esma) is currently reviewing proposed amendments to address these concerns, with the investment community actively participating in the discourse to ensure the fund’s viability and appeal.
EU-level tax incentives
“As an industry we are working to ensure that the technical standards won’t jeopardise the main thrust of Eltif 2.0,” said Macey in the Natixis note.
As Eltif 2.0 potentially begins to reshape the landscape of European investment, the emphasis on continuous dialogue between the financial industry and policymakers is paramount. With collective efforts, Natixis said. Eltif 2.0 aims not only to bridge the gap left by its predecessor but also to catalyse sustainable economic growth, job creation, and infrastructure development across the EU, heralding a new era of accessible, long-term investment opportunities for all.
Macey would like the European Commission to go even further in the future and offer tax incentives for investment in Eltifs, mirroring tax breaks offered in the US for similar vehicles, such as Business Development Corporations for instance. Such an idea also finds support at Luxembourg’s fund industry association Alfi, whose CEO Serge Weyland addressed these aspects in an interview with Investment Officer.
“Yes, there are public finance constraints in the EU, but if we want the private sector to help finance the real economy, it should be realised that tax incentives could benefit everyone, including governments,” said Macey. “Tax incentives could channel long-term capital to the real economy, facilitating the building of renewable power and energy infrastructure, SMEs, schools, hospitals and so on.” “This would create jobs and improve lives across the EU.”
Further reading on Investment Officer Luxembourg:
- Alfi CEO: ‘Green Eltifs’ deserve EU-level fiscal support
- Eltif 2.0: EC wants to abandon mandatory redemption period
- Eurozone seeks to resuscitate EU’s stunted capital markets project