Eltifs

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. 

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.

This Luxembourg edition of IO Talks hears about the latest developments in the realm of legislation around alternative investment solutions, and in particular European Long Term Investment Funds, or ELTIFs, and what they mean for Luxembourg. 

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.

Luxembourg is strongly enthusiastic about the prospects of the new Eltif 2.0 regime as experts here point to untapped demand for such a product in Europe. While acknowledging the oft-mentioned concerns about the lack of liquidity for retail investors, there was optimism at a recent investment event hosted by Clifford Chance that solutions could be found. Investors though would have to be open-minded, and some in-built tensions need to be addressed.

Less than a month after the European parliament adopted its updated regulation for Eltifs - the European long-term investment funds - the new framework may be showing its first cracks. The lack of liquidity remains problematic, and that makes it unsuitable for private investors. 

The market for European long term investment funds, or Eltifs, is set to triple in the coming years as high-net-worth clients increasingly look to diversify their portfolios by increasing their exposure to private markets, according to US fund manager BlackRock. “We have, I would say, aggressive plans to expand.”

This week’s adoption of the updated EU regulation for long-term investment funds, known as Eltifs, raises hopes and expectations, both at a European level as well as on the ground in Luxembourg. Now it’s up to the industry to deliver. The fund ecosystem in the grand duchy is keen to embrace this opportunity.

As the European Parliament, during this month’s plenary session in Strasbourg, debated the proposed changes to the EU’s regulation for long-term investment funds, a plan also known as Eltif 2.0, Luxembourg was discussing a “lighter” special tax regime for this new type of fund that can target investors in 30 European countries under a single passport.