Lawyers in Luxembourg expect that at least 20 new European long-term investment funds, known as Eltifs, will be registered in the grand duchy this year, even before the more liberal regulatory regime for these funds enters into force in 2024, researchers at Scope Fund Analysis said.
Eltifs grew more than 50 percent last year into a 11.3 billion euro market, also buoyed by 4 billion euro in inflows. More than half of the 77 Eltifs available were registered in Luxembourg, according to the latest Eltif study by Scope Fund Analysis.
Scope projects a 2028 volume for this market at 35 billion euro under a base scenario, and 50 billion euro under a dynamic scenario, still less than the 100 billion euro forecast made by the International Alternative Investment Association, Aima.
“Scope is not quite as optimistic as Aima. Nevertheless, we expect significant market growth,” the firm concluded, adding that its top, dynamic projection hinges on the quality of the products offered and on whether their performance meets expectations.
Tax incentives ‘very conducive’
Scope said tax incentives could support growth of the Eltif market. People familiar with the regulatory landscape in Luxembourg have said earlier that the grand duchy is planning to introduce such a special tax status for Eltif funds. Citing experiences in France and Italy, Scope believes this could give Eltifs a bigger role when it comes to financing the energy transition and leveraging private assets for bringing Europe’s economy closer to being carbon-neutral.
“Given the huge sums of investment that will be needed in the coming years to transform the economy into a carbon neutral world, it would be desirable if tax incentives supported investment from private assets,” Scope said.
“Eltifs, which had their origins in the idea of eliminating the structural investment backlog for infrastructure projects in the EU, are the ideal vehicle for this. Experience from Italy and France in particular shows that tax incentives for private clients to invest in Eltifs are very conducive. In Germany, tax incentives for Eltifs would be transformational as they would trigger significant investments from private assets into the transition of the European economy towards a carbon-neutral world.”
Amundi, Azimut lead issuers
Some 23 new Eltifs were added to the European market last year, with seven providers launching their first fund. The most active providers are Amundi, Azimut, BlackRock, Commerz Real, Generali Investments, Eurazeo, Muzinich, Neuberger Berman and Partners Group.
Some 44 Eltifs were registered with Luxembourg’s financial supervisor CSSF at the end of 22. The European Eltif market is expected to face significant growth in the coming years after the European Parliament in February adopted a major liberalisation of the rules for these products. Luxembourg-based firms are keen to embrace new opportunities.
Eltifs were first introduced in 2015 thanks to EU regulation. The funds offer investors a regulated vehicle to invest in private markets with a relatively low minimum investment of less than 100,000 euro. Scope said “momentum can be seen” in new well-known providers” entering into the market.
Volumes placed in Eltifs were distributed evenly across private equity, infrastructure and private debt. Private equity and private debt dominate when it comes to the number of products, but infrastructure Eltifs were more significant for institutional investors.
Private-client ELTIFs in fundraising:
