ELTIF 2.0: The new era of long-term investments in Europe

What are ELTIFs?

ELTIFs are regulated investment funds that aim to invest capital in long-term projects. These projects include infrastructure, property, sustainable energy and small to medium-sized enterprises (SMEs) that are not listed on a stock exchange. The objective of ELTIFs is to promote long-term capital inflows into the European economy in order to support economic growth and employment.

ELTIFs are characterised by their strict investment rules. At least 70% of the capital must be invested in illiquid assets that are held for longer periods of time. This structure offers investors the opportunity to participate in the financing of projects that would otherwise be difficult to access.

The need for reform: Why ELTIF 2.0?

Despite their promising objectives, ELTIFs have experienced limited uptake since their introduction. Many market participants have faced regulatory hurdles and operational challenges. Key criticisms included:

• Strict investment regulations: Stringent requirements to invest in illiquid assets limited the flexibility of fund managers and made it difficult to diversify portfolios.
• Inadequacies in the design of the legal framework: There was a lack of practicability and clearly defined benefits for fund investors and fund sponsors.
• Complex administrative processes: Administration and compliance for ELTIFs proved to be costly and time-consuming.

The main changes brought by ELTIF 2.0

ELTIF 2.0 introduces several key changes aimed at increasing the attractiveness and usability of these funds:

1. Extended investment horizon and more flexibility

• Increased flexibility in portfolio composition: The new regulation allows fund managers to invest a larger proportion of capital in liquid investments. This makes it easier to overcome liquidity problems and offers more room for maneuver for tactical allocations.
• Expansion of investment opportunities: ELTIF 2.0 makes it possible to invest in a broader range of assets, including property companies and infrastructure.

2. Greater accessibility for retail investors

• Reduction of minimum investment amounts: Reducing minimum investment amounts makes it easier for retail investors to participate in ELTIFs. This promotes a broader investor base and increases the capital available for long-term investments.
• Simplified investor protection measures: The new rules include clearer information requirements and safeguards aimed specifically at retail investors. This is intended to increase trust and transparency.

3. Simplified administrative processes

• Reduction of administrative hurdles: The revision of administrative requirements is intended to reduce administrative costs and simplify operational processes. This makes ELTIFs more attractive for fund companies and investors alike.
• Clearer guidelines and less bureaucracy: The introduction of clearer and more precise guidelines will make it easier to comply with regulations and reduce the administrative burden.

Impact and opportunities

The reform of ELTIF 2.0 aims to revitalise the market for long-term investments in Europe and provide new impetus for growth. The expanded investment opportunities and improved accessibility could encourage a significant inflow of capital into key sectors such as infrastructure, renewable energy and SMEs.

For institutional investors, ELTIFs continue to offer an attractive opportunity to invest in sustainable and long-term projects that promise stable returns and positive social and environmental impact. At the same time, it opens up a new dimension of participation for small investors, thereby strengthening financial inclusion.

Another important objective of ELTIF 2.0 is to support the European Green Deal initiative and the transition to a low-carbon economy. By providing targeted support for investments in sustainable projects, ELTIFs help to achieve the European Union's climate targets and promote sustainable growth.

Challenges and outlook

Despite the promising changes, there are also challenges that need to be overcome. The successful implementation of ELTIF 2.0 will require close co-operation between regulators, fund managers and investors. It will be crucial that all parties involved understand the new rules and opportunities and make the best possible use of them.

It also remains to be seen how market conditions will develop and whether the adjustments will be sufficient to achieve the desired effects. Market participants must remain vigilant and react flexibly to changes to fully utilise the benefits of ELTIF 2.0.

VP Fund Solutions - experience & efficiency in dealing with ELTIFs

Through its regulatory expertise, VP Fund Solutions ensures that all ELTIFs comply with strict EU regulations and helps investors navigate the complex administrative requirements.

Through optimised processes and modern technology, VP Fund Solutions also offers efficient fund administration that reduces costs and maximises performance. With the new ELTIF 2.0 regulation, which offers more flexibility and expanded investment options, VP Fund Solutions is ideally positioned to capitalise on these advantages and offer investors innovative and customised solutions.

The combination of expertise, flexibility and adaptability creates a solid foundation for long-term investments. Through its specialised services, VP Fund Solutions helps to fully exploit the potential of ELTIFs and promote sustainable economic development.