ELTIF 2.0 or a classic fund commitment: which suits a private investor

Since 10 January 2024 a private investor in the EU can buy into private equity, private debt or infrastructure through an ELTIF without the former EUR 10,000 minimum, and since the technical standards of October 2024 such funds may also offer redemptions during their life. An ELTIF is still not a classic fund commitment in smaller denomination. The money is usually paid in on day one, part of it sits in liquid assets, the exit is limited by rule, and the cost structure is different. For amounts below roughly EUR 200,000 per fund it is often the only regulated route. Above that, a commitment to a closed fund remains the cleaner instrument for anyone who can handle capital calls.

What changed with ELTIF 2.0?

The European Long-Term Investment Fund has existed since 2015 and barely sold. The amending regulation itself records that all ELTIFs together held about EUR 2.4 billion in 2021. Regulation (EU) 2023/606, which applies from 10 January 2024, rewrote the rules in four places that matter to a private investor.

The entry threshold is gone. Before, an investor with a financial portfolio of up to EUR 500,000 had to put in at least EUR 10,000 and could not hold more than 10% of that portfolio in ELTIFs. Both limits were deleted. What remains is a suitability assessment under the MiFID rules before the sale, and a right to cancel the subscription within two weeks and get the money back without penalty.

The fund may hold more that is liquid. An ELTIF must now invest at least 55% of its capital in eligible long-term assets, down from 70%. The rest can sit in the kind of securities an ordinary UCITS fund may hold.

The investable universe is wider. Funds of funds are permitted, listed companies qualify up to a market capitalisation of EUR 1.5 billion instead of EUR 500 million, and the minimum size for a single real asset was dropped. An ELTIF sold to retail investors may borrow up to 50% of its net asset value.

And redemptions before the end of the fund's life are allowed, under conditions. That is the part that makes the open-ended, "evergreen" ELTIF possible, and it only became usable when Delegated Regulation (EU) 2024/2759 entered into force on 26 October 2024.

How liquid is an ELTIF really?

The default in Article 18 of the regulation is unchanged: investors cannot redeem before the end of the fund's life. A fund may deviate from that if it sets a minimum holding period, has a redemption policy matched to its assets, and limits redemptions to a percentage of its liquid assets. If more investors want out than that percentage allows, everyone is served pro rata.

The technical standards turn this into tables. The more often a fund redeems and the shorter the notice period it asks for, the smaller the share of its liquid assets it may pay out on any one date. A fund that redeems quarterly with a long notice period can release a large part of its liquidity pocket; one that offers frequent dealing with little notice only a small fraction.

Read plainly: the redemption right is a claim on the fund's liquid pocket, shared with every other investor who wants to leave at the same time. In a quiet year it works. In a year when many want out, it pays out a fraction and the queue rolls to the next date. We would treat ELTIF money as tied up for the full recommended holding period and regard the redemption window as a convenience.

How does an ELTIF differ from a classic fund commitment?

In a classic closed fund you sign a commitment and the manager draws it over several years through capital calls. You hold the uncalled money yourself and have to have it ready at ten days' notice or so; we described that planning in planning liquidity for capital calls. At the end of the term the fund is wound up and everything is distributed.

Three of these rows deserve a second look.

Paying in full sounds like a convenience and has a price. Say you put EUR 50,000 into an evergreen ELTIF that keeps 20% in liquid assets. EUR 40,000 works in private assets. If those earn 10% in a year and the liquid part 2%, the fund makes 8.4% before costs, and fees are charged on the full EUR 50,000. In a closed fund the same EUR 10,000 would still be in your own account, free of fees, until called. These figures are an illustration, not a forecast; the mechanism holds whatever the returns are.

Entry at NAV means there is no vintage. A closed fund starts empty, shows the J-curve and can be judged against funds of the same vintage. An evergreen fund is a running portfolio whose price is the manager's own valuation, on the way in and on the way out. That is no accusation. It does mean the investor relies on the valuation process twice.

And the cost stack is longer. Besides management and performance fees there are often distribution fees and, in a fund of funds, the costs of the target funds underneath. The regulation requires a key information document for retail investors; its cost table is the first thing to read, and the figure to compare is total cost per year on the amount invested, not the headline management fee.

For whom is which the right choice?

An ELTIF fits an investor who wants private-market exposure with EUR 10,000 to perhaps EUR 100,000 in total. With that sum, direct commitments to institutional funds are as a rule not available in Germany anyway: the German Capital Investment Code defines the semi-professional investor, to whom special funds may be sold, by a commitment of at least EUR 200,000 among other conditions. A diversified ELTIF also spreads a small sum across more companies than one direct commitment would. It suits people who do not want to manage calls, currencies and ten portals.

A classic commitment fits an investor who can place several tickets of that size across several years and managers, which means private-market capital of a million euros or more, and who is prepared to keep the uncalled part liquid. In return the costs are as a rule lower and easier to see, the cash stays under the investor's control until it is needed, and performance can be measured against peers. The current complaint of such investors, that funds return money slowly, applies to an evergreen ELTIF too, only out of sight: we wrote about it in the distribution drought.

Between the two there is a mixed case that we think is underrated: commitments for the core, and an ELTIF for a segment where one could never build a diversified position alone, such as infrastructure or private debt.

How an ELTIF is taxed in Germany depends on its legal form and domicile. That is a question for your tax adviser, and nothing here is tax or investment advice.

Before subscribing, ask for four documents and read them in this order: the cost table of the key information document, the redemption policy with notice period and cap, the share of the fund currently held in liquid assets, and the valuation policy. Whoever sells the fund should be able to hand over all four the same day.