BlackRock: ELTIFs can open discretionary portfolio management to private markets
European Long-Term Investment Funds (ELTIFs) could drive the inclusion of private markets in discretionary portfolio management (DPM), giving individual investors access to higher returns and diversification.
ELTIFs are an EU regulation designed to encourage investment into long-term assets. The second iteration of the ELTIF structure – dubbed ELTIF 2.0 – came into effect in January this year, opening it up to a broader range of assets and allowing a semi-liquid, evergreen structure.
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A new report from asset manager BlackRock highlighted the growth of the ELTIF market, which is estimated to have reached €13.6bn (£11.5bn) by the end of 2023.
It cited data from the Alternative Investment Management Association that estimates inflows of around €100bn in the next few years.
BlackRock noted that demand for simpler fee structures and better value for money has led to a shift to fee-based advisory and discretionary models in the wealth market.
Read more: ELTIF 2.0 presents “interesting opportunities” for private credit
“Fee-based models focus on delivery of outcomes, and therefore place more emphasis on robust and standardised portfolio construction and risk management processes,” the report said. “Traditional closed-ended private markets funds have been difficult to integrate in this setup, given the inherent lack of standardisation.
“Whilst DPM propositions are steadily growing, the lack of private markets exposure has potentially meant that investors have missed out on the return and diversification benefits of private markets, putting pressure on distributors to evolve their DPM offering. ELTIF 2.0 is set to bridge this gap.”
BlackRock said that DPMs can generate alpha through private markets asset allocation, due to the regular liquidity offered by ELTIFs.
DPMs that allocate to both public and private markets in a single portfolio can manage it based on an investor’s overall liquidity requirements rather than on an individual fund level.
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And evergreen strategies – allowed in the ELTIF structure – can be used to offer core exposure to private markets in a way that is not possible with closed-ended funds, BlackRock said.
“The popularity of open-ended strategies is a relatively recent phenomenon in the private markets’ world, but they have been long-established for mutual funds,” said Fabio Osta, EMEA head of alternatives specialists team, wealth, at BlackRock.
“This means that open-ended ELTIFs will be able to draw on some of the key operational features that have made mutual funds so scalable. We see ELTIFs as the only wrapper capable of distributing private markets investment strategies to all investor types across Europe and look forward to this regulation making this asset class more widely accessible.”
