The asset management industry has a new favorite: the European Long-Term Investment Fund, or Eltif. It is designed to give retail investors access to less liquid asset classes, such as private markets. Initially, Eltifs saw limited success in Germany. However, with the introduction of the Eltif 2.0 regulation, which has been in effect since 10 January, the Eltif market has gained significant traction.

According to Scope, as of 30 September a total of 36 Eltifs have been launched this year. This already surpasses the record set in 2021, when 27 products were issued over the entire year. „Eltif 2.0 now allows more retail investors access to private equity“, explains Markus Pimpl, Managing Director and Co-Head of Private Wealth Europe at Partners Group, in an interview with Börsen-Zeitung in Frankfurt. „At the same time, Eltif 2.0 permits nearly half of the allocation to equities and other liquid investments. I see this as a dilution of the private markets character of Eltifs.“

The publicly listed Partners Group specialises in private markets, and lays claim to over 20 years of experience managing private wealth. The firm manages more than 40 billion dollars in its private wealth solutions, and has already launched several Eltif-compliant funds, including a private equity evergreen Eltif in May.

„The process has become significantly easier. Eltifs are now treated almost like traditional investment funds“, explains Pimpl. „We are currently seeing a surge in new Eltif launches. But I fear that some issuers are not familiar with the specific characteristics of private markets, especially during challenging market conditions.“

The 36 new Eltifs come from 31 different providers, reports Scope, adding that it is "noteworthy the number of firms launching an Eltif for the first time – 22 asset managers have entered this market segment in 2024.“ This marks yet another record. Recent new entrants include firms like Allianz GI, Bain Capital, Carlyle, PGIM, and UBS AM. The majority of new launches this year are in the asset classes of private equity and private debt. The third-largest segment, based on the number of Eltifs issued, is infrastructure.

„The likelihood of mishaps is high“, says Pimpl. „Many asset managers lack the expertise and teams necessary for private equity and private markets. Building the required experience takes decades. We have been doing private equity for over 20 years, and have never had to shut down a fund during this time.“

Pimpl also highlights issues with fees and distribution. „It’s important to maintain reasonable fees that ensure investors benefit appropriately from an Eltif. Interests should be aligned“, warns the expert. „With the current hype, some Eltifs are being aggressively marketed. However, it’s always essential to consider product quality. A high equity allocation could cause some products to lose the private market characteristics – such as diversification from equity markets – that investors seek.“

Expertise is critical. „We invest in established companies that we actively develop further“, says Pimpl. „For example, we advanced Techem's business development to the point where we were able to double the invested capital.“

Private markets are becoming increasingly important. „The number of publicly listed companies is declining in the US and globally due to increasing regulation“, explains Pimpl. „Collaboration is becoming increasingly important in private equity and Eltifs. Many asset managers simply lack the expertise for private equity. We are also currently in discussions with several parties about collaborations.“