Navigating ELTIF 2.0: Expanding access to Private Markets

The interest in lauching ELTIFs

ELTIFs have been designed to channel capital into long-term investments in the real economy, such as infrastructure, Real Estate, and small and medium-sized enterprises (SMEs). The interest in ELTIFs stems from their potential to provide an attractive risk-return profile, significantly less correlated to stock and bond markets, while supporting economic growth, employment and development.

Experience and Go-To-Market strategy

Launching an ELTIF involves navigating a complex, albeit significantly improved regulatory landscape and ensuring compliance with both local and European Union regulations. After more than one year of the ELTIF 2.0 Regulation’s taking effect, now seems to be a good point in time to recap the main experiences and challenges encountered during the launch and operations of ELTIFs within the asset management industry. Experience has highlighted several key steps in the go-to-market strategy:

• Regulatory Approval: Securing approval from regulatory bodies is the first and most critical step. This involves preparing detailed documentation that outlines the fund’s investment strategy, risk management framework, and compliance with ELTIF regulations. Overall, regulators have been highly supportive and collaborative in launching ELTIFs,

• Market Research: Understanding market demand and investor appetite is crucial. This involves conducting thorough market research to identify potential investors and their investment preferences,

• Product Design: Designing an ELTIF that meets the needs of investors while adhering to regulatory requirements is a delicate balancing act. This includes determining the fund’s investment focus, liquidity provisions, fee structures, and the operational feasibility of subscribing and redeeming ELTIF shares,

• Marketing and Distribution: Effective marketing and distribution strategies are essential to attract investors. This involves leveraging both traditional and digital marketing channels to reach a broad audience

Key challenges

Launching an ELTIF comes with several challenges, including:

• Legal and Regulatory Compliance: Ensuringcompliance with the regulatory framework governing ELTIFs can be daunting. It requires a deep understanding of both local and EU regulations and the ability to navigate the approval process efficiently while adhering to the most relevant features for clients. Especially the liquidity management features and respective client interests is a key area to be modelled in detail both internally (i.e. with Risk Management and Portfolio Management) and externally (i.e. with the Regulator),

• Operational Complexity: Managing an ELTIF involves significant operational complexity, including in relation to fund administration, reporting, and investor relations. This requires robust systems and processes to ensure smooth operations. It has also become apparent that the necessary intermediaries involved in onboarding and offboarding ELTIF investors have not yet found final solutions to all challenges. The biggest operational challenge is still the identification and processing of lock-up periods (both hard and soft) and the respective management of client-specific events (such as transfers). A key factor is the data flow between all parties involved in the subscription and redemption process chain, i.e., from distributor to transfer agent,

• Education: Educating investors and distributors about the benefits and risks of investing in ELTIFs is crucial. This involves providing clear and transparent information to help investors make informed decisions.

Key success factors

Several factors contribute to the successful launch and operation of an ELTIF:

• Robust Risk Management: Implementing a robust risk management framework is essential to protect investors and ensure the long-term success of the fund,

• Strong Regulatory Relationships and Regular Exchange: Building strong relationships with regulatory bodies can facilitate the approval process and ensure ongoing compliance,

• Effective Communication: Clear and transparent communication with investors and all stakeholders involved is key to building trust and confidence in the fund,

• Market Expertise: Leveraging market expertise and insights can help identify attractive investment opportunities and navigate market challenges.

Unlocking the potential of ELTIFS

In conclusion, the launch of ELTIFs represents a significant opportunity to expand access to private markets for a broader range of investors. By navigating the regulatory landscape, addressing operational challenges, and leveraging market expertise, the industry can unlock the potential of ELTIFs to deliver long-term value for investors and support economic growth.

Helge Baur, Director Head of Private Markets Operations and Co-Branch Head Luxembourg, Allianz Capital Partners GmbH