The launch of the amended Eltif regulation – version 2.0 – fits a narrative in some quarters that the version of Eltif already on the books is some kind of failure. Data nevertheless shows that investment in even the “limited” version of the investment vehicle in place since 2015 is still growing quickly and various projections specify even faster growth. In order for the vehicle to be sold to masses of clients under Eltif 2.0, experts said that consequential adaptations will have to be made to the way such funds are sold and distributed.
Published estimates of the future growth of the Eltif market put its value in the next five years between 35 and 100 billion. Legal and financial experts have seen few issues with the Eltif 2.0 package itself, saying EU regulators were attentive to complaints about the shortcomings of the earlier edition. However, while market participants involved with selling Eltifs over the past decade, speaking at an ALFI event on Eltifs, welcome the new Eltif 2.0, they are proud of the hard work they did in creating a market for this nearly decade-old European level asset class.
Jane Griffin, now head of product strategy at Pictet Alternative Advisors, was then working at Partners Group, regarded as the first mover with Eltif. “It was very difficult,” said Griffin, recalling the beginning. “People didn’t know what it was when we went out, educating our sales force, educating the intermediaries that we wanted to sell on our fund, helping them educate their end clients.”
“At the beginning in 2016, the question was why are we proposing a fund that is a fund with a new European level? So it’s not a new fund, it’s not a new strategy, it’s not a new structure?,” said Loredana Carletti, head of real assets at Amundi Luxembourg.
Retail only
There are true believers in the European Capital Markets Union strategy out there packaging and selling Eltif 1.0 products. Constanze Jacobs, head of transactions, structuring & asset advisory at Commerz Real AG spoke of her bank’s 2-year-old Klimavest Eltif, which has 1 billion euros in assets under management.
“Our distribution model was from the beginning to focus on retail investors only,” said Jacobs. “The fund is not being distributed to institutional clients nor to insurance coverage, and it was the aim of Commerz Real to democratise alternative investments.”
The distribution options under Eltif 2.0 will make it even easier for Commerzbank to focus on the retail investor space. The company’s approach is fairly radical even for most people active in Eltifs, who think they can only sell Eltifs to wealthy clients.
“It will be important to really attract the ‘everyone investor’, so for us, it is also interesting to have investors investing through savings plans,” said Jacobs. “So like the 100 euro tickets will be interesting because that is something you build up on for the next decade.” Jacobs added that this is the approach her employer has taken with its hausInvest product, a 17 billion euro under management property fund. “It’s the small investors that come together and make it grow.”
Over at Amundi Luxembourg, Loredana Carletti spoke of her employer’s stable of eight Eltif funds. Five are aimed at retail investors, and three are reserved for professional clients. “We decided to embrace this adventure in 2016 mainly to have the possibility to offer private market strategy to retail investors on a cross-border approach.”
Three times as fast
Taking a wider, more global view, Tarun Nagpal, the founder of S64, said the Eltif 2.0 has come at “a perfect time” to take advantage of what he sees as a dramatic move of private assets and markets towards retail. “The market has kind of moved at probably three times the rate that even I’d ever expected it to, and I set up a whole business just to do this.”
But Nagpal said the fund industry will have to invest heavily in developing technology and digitised solutions to profit fully from this opportunity. ”All the way from AML-KYC down to regulatory classification and tax reporting will be another critical part of the infrastructure that will be required to unleash the full potential behind the Eltif.”
Paper-based process
It’s possible for these investments to attract more and more investors as the investment threshold goes down to 1000, or 100, he said. “How do you deal with the volume in what’s historically been a very one to one, paper-based, heavy kind of processes?” asked Nagpal, rhetorically.
“It will be required to invest or to partner with service providers also offering digital infrastructure, which allows to accommodate thousands of potential requests for subscriptions for transfers, but also for redemptions,” said Benjamin Rossignon, an Elvinger Hoss partner.
But another challenge facing the democratisation of private assets is basic education, Nagpal said. “So people really understanding what these products —private equity, infrastructure, real estate — are about. Many of these networks who are adopting the Eltif are selling private markets for the very first time.”