ELTIF 2.0 – A Widening Investment Spectrum for Retail and Institutional Investors

Since the revised regulation on European Long-Term Investment Fund (the ELTIF Regulation), otherwise known as ELTIF 2.0 framework came into effect in early 2024 and subsequent regulatory technical standards, we have seen growth in the availability of European Long-Term Investment Funds (ELTIFs) with different maturities, liquidity levels, and investment approaches – testimony that the EU’s reform of the ELTIF concept is already delivering tangible benefits less than 18 months on from its review.

In addition to a broad spectrum of investments in eligible assets, including a wider range of real estate opportunities, under ELTIF 2.0, up to 45 per cent of investments can now be held in assets eligible to be structured as a UCITS fund, allowing individual investment strategies to be realised with significantly greater ease and flexibility.

Moreover, ELTIFs may now invest in fund of funds. These target funds do not have to be ELTIFs, EuVECAs, or EuSEFs themselves; they can be UCITS, or AIFs, as long as they are domiciled in the EU, are managed by an EU management company/alternative investment fund manager (AIFM) and contain only assets in which an ELTIF may invest directly. However, the underlying assets may well be located outside the EU. The same applies to direct investments, as long as the target companies are not on any EU blacklist. To avoid multi-layered fund-of-funds structures, the target fund may not invest more than 10 per cent of its assets in other investment funds.

These reforms offer significant flexibility as investors seek to diversify away from traditional equities and bond portfolios, and have been driving demand since the reforms came into effect: According to data from the European Securities and Markets Authority (ESMA), 159 ELTIFs are currently registered, 62 of which were authorised by supervisory authorities in 2024 alone. One major advantage of ELTIFs for promoters is distribution: since no additional distribution authorisations are necessary (merely a notification process), the ELTIF can be marketed in other EU countries without any obstacles – an advantage, especially in the retail segment.

Luxembourg remains the leader with 117 funds, followed by France (38), while Ireland has now matched Italy with 13 registered ELTIFs at present – highlighting the importance of Ireland as a domicile. (Source: ESMA ELTIF Register, as at 13 May 2025).

Ireland as a fund domicile has a number of key advantages that position it for future growth, including:

1. Optionality – ELTIFs can be authorised in Ireland to be offered to professional/qualifying investors or retail investors;

2. Speed to market – In Ireland, ELTIFs offered to professional/qualifying investors can be fast-tracked for a 24-hour fund approval while the CSSF review in Luxembourg continues to take over six months. ELTIFs offered to retail investors undergo a Central Bank pre-review process which would take approximately 3 months; and

3. Umbrella efficiencies – Existing Irish umbrella Retail Investor AIF structures can be used to establish new retail investor ELTIF sub-funds, and existing umbrella Qualifying Investor AIF structures can be used to establish new Qualifying Investor ELTIF sub-funds, providing for the efficient establishment of ELTIFs on existing Irish umbrella fund structures.

Appeal for retail investors and institutions

ELTIFs are primarily intended to afford retail clients the opportunity to invest in private markets. When assessing suitability, retail clients focus on the subscription modalities, including the minimum investment requirements and early redemption provisions.

Nevertheless, ELTIFs are also suitable for institutional investors, such as foundations and family offices, due to their flexible configuration. The appeal of its features differs from retail investors with institutional investors’ priority being the optimisation of the investment strategy and achieving long-term performance.

ELTIFs can also be of particular interest to Solvency II investors, as they benefit from favourable capital charges in certain cases. For example, the Solvency II Equity Risk sub-module, which imposes a 49 per cent capital charge for unlisted equity investments, can be reduced for suitably structured ELTIFs.

Furthermore, under certain conditions, the Long-Term Equity Investment (LTEI) sub-module can be applied, facilitating a further significant reduction of the required regulatory capital.

The conditions are that the ELTIF must be long-term, have a certain minimum holding period, and its risk profile must meet the requirements of Solvency II.

The alternative appeal – long-term investments in social infrastructure, renewable energy, and transport infrastructure

ELTIFs are long-term investment vehicles focusing on social infrastructure, renewable energy, and transport infrastructure. Developments in wind power, solar energy, and battery storage are progressing rapidly, and the spectrum of investment opportunities is expanding. The pace of technological change is intensifying the demand for alternative energy sources. Interest is growing in technologies, such as hydrogen fuel, energy storage systems, and data centres, which often go hand in hand with renewable energy.

ELTIF 2.0 as a vehicle for loan origination

As the European regulatory framework for alternative investment vehicles continues to evolve, the intersection of the ELTIF and AIFMD regimes is becoming increasingly relevant, particularly in the context of loan origination.

Under ELTIF 2.0, managers now have the flexibility to originate loans directly or acquire them on a secondary basis. Eligible investment assets explicitly include loans granted by the ELTIF to qualifying portfolio undertakings (QPUs), provided their maturity does not exceed the life of the fund.

This development aligns with the forthcoming AIFMD 2.0, which introduces a new regulatory framework for loan-originating AIFs and is set to come into force on 16 April 2026. Notably, AIFMD 2.0 has been drafted with ELTIFs in mind: It provides that the specific product rules under the ELTIF Regulation override loan origination rules under AIFMD.

Certain provisions of AIFMD 2.0 (Art 15) will however apply to an AIFM to the extent it engages in lending, for example, having policies and procedures in place for assessing credit risk, administering and monitoring credit portfolios on a periodic basis etc.

Key considerations for ELTIF initiators

A major advantage of the new ELTIF 2.0 concept is its flexible configuration. The European Long-Term Investment Fund offers retail clients and institutional investors a tailored and modern instrument for a growth-oriented, yet sustainable investment, in the real economy.

However, there are many factors to consider when structuring an ELTIF. The first question should always be “who is the product’s target investor group”? For institutional investors, the most important factors are investor-specific regulations, such as the Investment Ordinance and Solvency II, as well as product tax governance. Equally important are restrictions on indirect investments under investment law and for investment tax purposes.

Within the three large asset classes of private equity, private debt, and infrastructure, different maturities and liquidity requirements affect fund structuring. For instance, the maturity of a private equity ELTIF is often shorter than that of an infrastructure ELTIF, while a private debt ELTIF generally has a shorter maturity and the liquidity often higher. Therefore, this requires a tailored approach to the specific investment strategy instead of a one-size-fits-all solution.

The assignment of tasks and responsibilities, i.e., the individual roles within the fund structure, are crucial. These roles, along with the third-party management company /AIFM, have a significant impact on the operational setup. One of the key issues is the portfolio management function, which mainly affects transaction and liquidity management. In addition, key elements such as valuation frequencies and valuation systems, capital call processes, investment structures, and liquidity management instruments must be carefully established.

Further fund details also must be clarified. These include whether distribution or accumulation is preferred, whether currency management or currency hedging is required, and whether a separate share or unit class should be launched for specific investor groups.

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Universal-Investment-Gesellschaft mbH

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