Are ELTIFs truly opening up to retail?
The second iteration of the European Long Term Investment Fund (ELTIF) structure has been heralded as a game-changer for the democratisation of long-term asset investing.
But industry experts have suggested that the new vehicle is not being used to target the retail market just yet.
The new EU rules, known as ELTIF 2.0, came into force on 10 January, with an aim of encouraging individual investors to put money into long-term, illiquid assets.
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“ELTIF 2.0 is having quite an impact on the industry as there’s the possibility to extend access to private assets, including private credit, to retail investors,” said Mikhaelle Schiappacasse, partner at law firm Dechert.
“However, the challenge is for firms that have historically operated in the institutional investor space to transition to the retail investor space. For example, it’s quite quick in Luxembourg to set up a non-retail ELTIF but there’s a certain overlay if you’re targeting retail investors which makes the set up process more time consuming.
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“If you’re selling to retail investors you need to comply with MiFID requirements around dealing with retail clients and most private fund managers are not set up to do that, as they’re used to the lighter touch requirements of dealing with institutional clients.”
While fund managers may not be using ELTIFs to target retail investors, they still may be using them to expand their distribution channels, Schiappacasse added.
Read more: ELTIF 2.0 presents “interesting opportunities” for private credit
“I think fund managers without a retail client base are using the ELTIF structure to market these funds to wealth management firm clients, because it allows them to have access to a broader, less institutional investor base,” she said.
ELTIF 2.0 is an update from the original ELTIF structure launched in December 2015, which was not very popular due to a lack of flexibility and limited range of eligible investments.