Wealth Managers

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 Eltif 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.

Luxembourg’s finance minister has tabled a proposal to the grand duchy’s parliament to encourage the uptake of European long-term investment funds known as Eltifs. If adopted, the proposal will exempt Eltifs from requiring to pay the quarterly registration tax levied on Luxembourg investment funds.

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. 

The Luxembourg government clarified its application of the reverse hybrid rule in the EU’s second anti-tax avoidance directive (ATAD-2) last November, in 2022. It made clear that tax-exempt investors are exempt from the application of the reverse hybrid rules and clarified when they do apply to other investors. With the “quite helpful” clarification bringing simplification in one area, the quest for certainty has moved to related issues, such as allocating the potential tax burden if a given investor triggers it.

A recent European Central Bank study calling for a regulatory framework to address instability in the market for Real Estate Investment Funds, known as Reifs, has been downplayed by a growing number of real estate specialists contacted by Investment Officer in Luxembourg and London. 

If there’s one thing clear from recent months, it’s that Luxembourg is placing a major bet on the future of Eltifs, or European Long Term Investment Funds. The EU’s adoption of a major upgrade of the Eltif regulation is opening the doors to private markets for high-net-worth investors and wealth management clients.

Rising interest rates and the demise of Silicon Valley Bank and Credit Suisse have led to a paradigm shift in private equity and venture capital. Reji Vettasseri, lead portfolio manager at Swiss private finance group Decalia, believes investors now need to to be innovative with emerging strategies, carefully selecting ‘small cap’ firms to invest in instead of fleeing to the safety of larger ventures.

Europe’s fund and asset management organisation Efama, active in the development of the updated European long-term investment fund, expressed  strong optimism this week about the updated vehicle’s interest to both professional and retail investors and its ability to fulfill its Capital Market Union aspirations.

Despite early questioning of its ability to provide sufficient liquidity to attract retail investors, Efama’s expert detailed how the legislation provides several tools that afford liquidity solutions.

BTG Pactual, the largest investment bank in South America, said it acquired Luxembourg-based private bank FIS Privatbank in a move that should enable its Latin American clients to diversify their investment portfolios in developed countries while expanding its European client base beyond Portugal, Spain and the UK.

The European Union on Monday published the text of its updated regulation on long-term private investment funds, known as Eltif 2.0, in its Official Journal, clearing the final hurdle before its implementation from January next year.

The publication was expected following the adoption by the European Parliament in February. Luxembourg, as a leading investment funds hub in Europe, is keen to develop itself as an international hub for this new type of investment funds which will open up alternatives and private equity also to non-institutional investors.