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Comparing ELTIFs and LTAFs – a new era for illiquid investments on both sides of the river?
European Long-Term Investment Funds (ELTIFs) and Long-Term Asset Funds (LTAFs) are designed to facilitate investments in long-term and illiquid assets, such as private equity, venture capital, private debt, real estate and infrastructure projects. Notably, both ELTIFs and LTAFs can be structured to allow access for retail investors alongside professional investors, according with the broader market trend of ‘retailisation’ or ‘democratisation of private markets’.
Although the introduction of ELTIFs in 2015 did not generate the desired demand from both investors and sponsors, they have recently become an increasingly popular investment vehicle across the EEA. This can be mainly attributed to the revision of the ELTIF-Regulation in 2023 (ELTIF 2.0). The reform increased the flexibility of the investment vehicle and lowered the entry barriers for potential investors.
There has been a similar development in the UK market, although the LTAF has not yet garnered the same widespread adoption as the ELTIF. Revised LTAF rules came into effect in July 2023, making the funds more accessible to retail investors, DC pension schemes, and Self-Invested Personal Pensions (SIPPs). The allocation of funds to illiquid assets by pension schemes now appears to be a growing trend. Since the launch of the first LTAF by Schroders in March 2023, there has been an uptick in interest for the LTAF, with a number of LTAFs subsequently gaining regulatory approval. Interest in LTAFs may also be fostered as a spill-over effect from the increased use of ELTIFs in the EU, with ELTIF fund managers seeking to target the UK retail market.
Against that background, we have prepared a briefing that contrasts and compares the key features of ELTIFs and LTAFs, including
- applicable legislation and rules,
- product regulation, covering
- forms,
- competent regulatory authority and approval requirement,
- cross-border marketing,
- eligible investments,
- diversification requirements and portfolio composition,
- relevance of sustainability,
- borrowing,
- fund-of-fund strategies,
- derivatives,
- fund liquidity,
- management and governance,
- marketing and investor protection, and
- investments by insurance companies and pension schemes.
Comparing ELTIFs and LTAFs – a new era for illiquid investments on both sides of the river Briefing
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