Private equity fund managers are increasingly turning to European Long-Term Investment Funds (ELTIFs) as a structuring solution to access private markets. This growing trend is largely driven by the new ELTIF 2.0 regulation, which offers greater flexibility and improved capital deployment opportunities. Designed to facilitate long-term investments, ELTIFs are becoming an attractive vehicle for private equity managers seeking growth—particularly through a broader investor base and more favourable rules. This article explores the advantages of ELTIFs, the impact of the ELTIF 2.0 regulation, and best practices for managing these funds effectively.
Key Benefits and Differences of ELTIFs for Private Equity
Who Benefits and How?
ELTIFs are specifically designed to channel long-term capital into illiquid assets such as private equity and venture capital. For fund managers, ELTIFs offer a clear advantage by opening access to a wider range of investors, including retail and semi-professional investors, thereby diversifying funding sources beyond the traditional institutional base.
In addition, ELTIFs benefit from a European marketing passport, simplifying cross-border fundraising and helping managers navigate fragmented national regulations. This is a significant benefit for private equity funds aiming to raise capital from a pan-European investor base.
For investors—particularly high-net-worth individuals—ELTIFs offer enhanced transparency and regulatory protection. These features make ELTIFs a more stable investment vehicle compared to more speculative alternatives, improving capital volatility through long-term lock-up and targeted investment mandates.
Moreover, under ELTIF 2.0, the entry threshold has been lowered and the scope of eligible assets has been broadened, further increasing the attractiveness of ELTIFs for both fund managers and investors.
How ELTIFs Differ from UCITS and AIFs
ELTIFs provide a regulatory framework distinct from other vehicles such as UCITS and AIFs. Unlike UCITS, which mainly target liquid, listed securities and offer high liquidity to investors, ELTIFs are designed for illiquid assets such as private equity, infrastructure, and venture capital. This makes them well suited for long-term, growth-oriented investment strategies.
Although ELTIFs fall under the AIFMD (Alternative Investment Fund Managers Directive), they are uniquely positioned with enhanced distribution capabilities and stricter investor protections—especially when retail investors are involved. ELTIFs also impose specific limitations on leverage, asset concentration, and redemption policies, improving risk governance and aligning with long-term investment objectives.
The Rise of ELTIF 2.0 and What It Means for Asset Managers
Regulatory Reform and Market Impact
The original ELTIF regulation, introduced in 2015, saw limited uptake due to rigid asset rules and high barriers for retail investors. The launch of ELTIF 2.0 in 2024 marks a major improvement, addressing these challenges through several key reforms. One of the most notable changes is the broader asset eligibility, which now includes unlisted SMEs, digital infrastructure, and climate-focused investments—enabling greater portfolio diversification and opening new investment avenues.
ELTIF 2.0 also removes the €10,000 minimum investment requirement, making the vehicle more accessible to high-net-worth individuals and expanding the pool of potential investors. Liquidity management has also been improved with the introduction of semi-open fund structures allowing periodic redemptions aligned with the liquidity profile of underlying assets. These regulatory changes significantly enhance the flexibility and appeal of ELTIFs for both fund managers and investors.
Retailisation: Opportunity or Risk?
The growing participation of retail investors in private markets brings both significant opportunities and operational challenges for asset managers. ELTIFs act as a bridge between institutional-grade investments and the retail segment, allowing individual investors to access long-term illiquid assets traditionally reserved for institutions.
However, the inclusion of retail investors introduces new complexities—particularly in managing investor expectations around liquidity and the need for more frequent services. Retail investors often expect regular updates and easier access to liquidity, which can place operational pressure on fund managers. To meet these demands while preserving the integrity of long-term investments, managers must implement liquidity planning, clear communication strategies, and enhanced technological tools to streamline processes.
ELTIF Investment Strategy and Portfolio Construction
Asset Classes and Diversification
ELTIFs support strategic investment in long-term asset classes such as private equity, infrastructure, venture capital, and real estate. The updated framework allows for greater diversification and tailored portfolio construction, enabling managers to align assets with long-term objectives.
Regulatory adjustments under ELTIF 2.0 also allow for more concentrated exposure to individual assets, which supports thematic investment strategies—particularly in green energy or digital infrastructure. The European passport system also facilitates cross-border deployment without being hindered by disparate national rules, broadening opportunities for fund managers.
Liquidity and Redemption Management
While ELTIFs are inherently illiquid vehicles, ELTIF 2.0 introduces mechanisms to improve liquidity management. Fund managers can now offer periodic redemptions, provided these align with the liquidity profile of underlying assets. Proper structuring of liquidity buffers and clear redemption schedules will be key to maintaining long-term investment discipline while addressing investor expectations.
Performance and Reporting for Fund Managers
Benchmarking ELTIF Performance
ELTIF performance should be assessed using time-weighted internal rates of return (IRRs) and vintage analysis, as these metrics are better suited to the illiquid nature of ELTIF investments. These performance indicators allow managers to benchmark against comparable private market strategies rather than rely on public market equivalents.
Managers should ensure consistent data reporting, particularly when comparing performance across asset classes or jurisdictions. With retail investors becoming more involved, fund managers must prioritise transparency—especially around fees and their impact on net returns.
Reporting and Transparency
Given increasing regulatory scrutiny on private equity, fund managers must provide regular, detailed reports covering a wide range of metrics including asset allocation, liquidity planning, ESG data, and risk exposure. Platforms like ScaleX Invest support these efforts by automating data aggregation, ensuring accuracy, and delivering real-time insights through integrated dashboards. This not only helps managers comply with ELTIF regulations but also transforms reporting into a strategic communication tool for investor relations.
How ScaleX Invest Supports ELTIF Fund Managers
ScaleX Invest offers several solutions that simplify ELTIF management. For instance, it automates cap table monitoring and NAV calculations, ensuring that fund managers can generate reliable, real-time valuations. This is especially useful for funds exposed to unlisted entities, where precise valuation is critical for reporting and redemption planning.
Additionally, ScaleX Invest consolidates financial, regulatory, and ESG data on a single platform—eliminating duplication and delivering asset-level insights in seconds. This level of data consolidation improves operational efficiency and enables more confident decision-making. It also enhances transparency, allowing fund managers to respond more easily to investor queries or regulatory requests.
FAQs
How can asset managers integrate ELTIFs into their portfolio mix?
ELTIFs can complement other investment vehicles like AIFs and UCITS by offering exposure to long-term, illiquid assets. Managers can use ELTIFs as standalone funds or incorporate them into broader thematic strategies, such as those focused on infrastructure or digital innovation.
Are ELTIFs suitable for institutional investors?
Yes, while ELTIFs enable retail participation, their governance standards, transparency, and long-term stability make them equally attractive to institutional investors seeking stable, long-term returns.
How does ScaleX Invest support ELTIF operations?
ScaleX Invest offers tools to automate cap table tracking, NAV calculations, data consolidation, and compliance reporting. These features help reduce operational risk, improve accuracy, and enhance the efficiency of managing complex private fund structures.
What reporting requirements do ELTIFs face?
ELTIFs must report on a variety of metrics, including asset composition, investor exposure, leverage, liquidity, and ESG factors. These reports must meet ELTIF regulations as well as broader AIFMD guidelines.
Can ELTIFs help expand fundraising channels?
Yes, the regulatory changes in ELTIF 2.0 simplify access for retail and semi-professional investors, enabling fund managers to diversify their investor base and tap into new capital pools.
