The revamped Eltif 2.0 framework, effective since January, is breathing new life into the sector, with Luxembourg playing a central role in this expansion of the market for European Long-Term Investment Funds. This momentum is particularly evident as 29 new Eltifs have been authorised in the first half of 2024 alone, a stark contrast to the 97 authorised between 2016 and 2023.
Almost all of the 29 new funds were domiciled in Luxembourg, reinforcing its status as a leading Eltif hub for investment funds. Some 21 of the new funds were launched by new entrants in the Eltif market, including large asset managers like PGIM, Allianz, SwissLife, UBS and Carlyle. The data was reported this week by rating agency Moody’s, which referred to authorised new Eltifs reported by the European Securities and Markets Authority, Esma, in a quarterly update to its register.
The introduction of Eltif 2.0 addressed several barriers that hampered the market’s growth under the original 2015 regulations. These changes include reduced minimum investment requirements, greater operational flexibility, and enhanced liquidity options, making Eltifs more attractive to both retail and professional investors. Additionally, the new framework has broadened the scope of eligible investment assets and increased the allowable debt leverage, allowing funds to deploy more capital into sectors like private credit.
According to Moody’s, the Eltif market still remains relatively modest in size, with an estimated 10 billion euro in assets under management. This figure is small when compared to the European private equity market (1.7 trillion euro) or private credit (505 billion euro). However, the regulatory changes are expected to propel Eltifs into a more competitive position, especially within the growing private credit market.
Luxembourg’s strategic position
Luxembourg’s dominance in the Eltif market is not accidental. The country has long positioned itself as a global hub for investment funds, and it has embraced the Eltif structure with open arms. The local financial industry, led by organisations such as the Association of the Luxembourg Fund Industry, Alfi, has worked closely with regulators to ensure a streamlined and flexible framework for Eltifs.
Moreover, Luxembourg has set itself apart by offering semi-liquid and evergreen structures, which cater to the growing demand for flexible investment options. These structures allow for regular liquidity while maintaining long-term investment goals, addressing one of the most significant concerns that previously hindered Eltif adoption. The adoption of Eltifs in Luxembourg has been further bolstered by the country’s robust legal framework, which offers a range of tax and operational benefits, making it an attractive domicile for international asset managers.
Allianz’s infrastructure Eltif
Adding to the wave of new Eltifs, Allianz Global Investors announced on 4 September the launch of its first infrastructure-focused Eltif, the Allianz Global Infrastructure Eltif. This fund, designed as Allianz’s first private markets solution for retail clients, aims to capitalise on trends like decarbonisation and digitisation through a diversified portfolio of global infrastructure assets. Target sectors include energy, transport, communications, healthcare, and the environment, with potential investments ranging from wind farms to green hydrogen plants and data centres. The minimum investment for retail clients is set at 10,000 euro, making it accessible to a wider range of investors.
Blackrock adds to momentum
Adding to the momentum in the Eltif market, Blackrock and Euroclear announced a partnership on Tuesday aimed at expanding the distribution of Blackrock’s private market funds, including Eltifs, through Euroclear’s FundsPlace platform. This collaboration will leverage Euroclear’s extensive fund distribution network, which serves over 2,500 clients globally, to make private market investments more accessible to a broader range of investors.
By utilising FundsPlace’s end-to-end distribution solutions, including order processing and data management, the partnership aims to streamline processes such as capital raising, execution, and settlement in alternative funds. This initiative is further supported by BlackRock’s Alternatives Academy, which provides education for advisors, ensuring that the new opportunities in private markets, including Eltifs, are understood and accessible to investors. Blackrock currently manages 167 billion dollars in private market assets, and this partnership signals a continued commitment to expanding private market strategies across Europe.
Competition from Ireland
Luxembourg is not alone in its efforts to capture the Eltif market. Ireland has also made significant strides, launching its first Eltifs under the new regulations in early 2024, with three Irish Eltifs registered in May of this year, and a total of seven by the end of June. Although Ireland’s fast-track approval process has sparked interest, Luxembourg remains the leading domicile, with some 40 Eltifs in the pipeline this year, according to people familiar with new funds.
In recent years, France and Italy have emerged as strong contenders in the Eltif market, largely due to the tax advantages available to investors in these countries for this type of product.
Only five countries have authorised Eltifs so far
Further reading on Investment Officer Luxembourg:
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Luxembourg eases creation of Eltifs from existing private funds