When the European Union launched the European Long-Term Investment Fund (Eltif) in 2015, the idea was quite ambitious. Private investors were to be given access to long-term, illiquid asset classes such as infrastructure, private equity or private debt, while at the same time urgently needed capital for sustainable transformation projects would be mobilised. But the reality was sobering – the product was simply not marketable. The reformed Eltif 2.0 rules, which have been in force for just over a year, should change all that. However, it is still questionable whether Eltif will take off.

The latest figures from the Scope rating agency show that while just 20 new Eltifs were launched in 2023, by 2024 there were already 58. The fund volume has also grown noticeably, not least because existing funds in other formats were transferred to the Eltif structure. It is also pleasing that the product range has diversified. In addition to traditional infrastructure and private equity funds, there is a growing number of private debt and multi-asset Eltifs, Scope reports. However, this quantitative expansion is not synonymous with a breakthrough.

In the course of the revision, the Eltif market continued to be burdened by regulatory uncertainty. The disputes between the EU Commission and the European Securities and Markets Authority (ESMA) over the Regulatory Technical Standards (RTS) illustrated how difficult the implementation was.

One particularly sensitive issue was the question of minimum liquidity. While some market participants wanted a mandatory liquidity reserve along the lines of the German open-ended property funds, the EU Commission favoured a more flexible approach.

The result of the latest reform leaves uncertainties in some areas that may still deter investors. Who is going to build complex IT infrastructures for a product as long as the framework conditions are not clear?

The Eltif amendment was also passed with the good intention of making the product more attractive for retail investors. The minimum investment amount of 10,000 euros was abolished, as were the strict allocation limits for the portfolio. In the end, the reform appears to have been successful. However, this does not automatically mean „democratisation“ and growth in volumes to significant levels.

In addition, despite all the adjustments, Eltifs remain complex products that are difficult to understand for many retail investors. Anyone opting for an Eltif has to deal with issues such as maturities, fee structures and limited redemption options. Even if some Eltifs are now issued in a semi-liquid form, the long term capital commitment is still an obstacle for small investors.

It is also questionable whether distribution is already geared towards broader investor groups. Advisors need to intensively explain the product to their clients – and this is precisely where the challenge lies. While Eltifs are integrated into the product range of many banks in countries such as France and Italy, Germany is lagging. The sales channels first have to develop.

The reform of the Eltif was undoubtedly a step in the right direction, but not a panacea. The growth of the segment is recognisable, but the big promises – a genuine democratisation of private markets access, a noticeable flow of capital into sustainable infrastructure projects, and a breakthrough for alternative asset classes – have not yet been fulfilled. Without further measures, the Eltif threatens to remain a niche product for specialised investors.

Just how difficult it is to package illiquid assets in a fund product for private investors is demonstrated by open-ended property funds, which have gone through severe crises and continue to cause problems despite a tough reform process in 2013 – prompting some critics to question the entire system.