What revamped long-term fund rules mean for private markets
This week, an often-overlooked form of private markets investment vehicle has been hitting the news: the European long-term investment fund.
For the unfamiliar, ELTIFs are not new. They were introduced by European regulators in 2015 to increase the amount of non-bank financing available to companies—and to facilitate long-term investments in things like infrastructure projects—by reducing the regulatory obstacles that typically limit the number of investors in traditional closed-end funds.
The first iteration of ELTIF regulation didn’t live up to expectations, and the funds were not widely adopted. This led to the recent introduction of a revamped version of regulation, dubbed ELTIF 2.0, that made it easier for retail investors to get access to the private markets.
ELTIF 2.0 came into effect in January, and there already seems to be more interest. In the last few days, asset managers announced two new ELTIFs. On Tuesday, Moonfare, which runs a private markets investment platform, revealed it will launch an ELTIF to give investors greater access to fund-of-fund structures. Sweden’s SEB Group launched its own ELTIF on the same day.
The appeal is that these funds provide private-markets exposure to a broader class of investors outside of traditional financial institutions. In Europe, ELTIF 2.0 is expected to play a major role in easing access for more investors. This is part of what has been called a democratization of the private markets—a concept often invoked in the marketing materials of investing platforms like Moonfare. It is also a recurring theme in our reporting and analysis. (This Q&A with Moonfare’s CEO is a good example.)
However, while the term is useful shorthand, it is also somewhat misleading. In many cases, there are still certain restrictions in place for would-be investors who gain less direct control when compared to traditional institutional investors.
In the end, strategies like ELTIFs boil down to an increase in the pool of capital available to private market fund managers—something of growing importance as fundraising becomes more constrained and competitive.