Europe broadens its retail appeal

As if the retail investor base wasn’t already being feverishly courted by Europe’s alternative asset managers, a poll of investors by consultants bfinance this week gave them even more reason to do so. The poll found most investors are looking to decrease their private markets allocations and increase fixed income over the next 18 months. With institutional money tightening, fund managers will be all too aware that retail investors are a barely tapped but potentially huge source of capital.

In this context, the latest reforms to the European Long-Term Investment Fund – agreed this week by the EU – should be of interest. Europe has never had a direct equivalent of the US’s retail-friendly business development company market, but the ELTIF is one of the ways in which the region has sought to widen access to alternatives products. However, it has not exactly been a flyaway success up to now: in April this year, only 67 such funds had been launched in the EU since ELTIF-enabling regulations were introduced in 2015. The UK snubbed the ELTIF entirely by introducing its own equivalent, the Long-Term Asset Fund, last year.

But the EU has recognised the weaknesses of the ELTIF and sought to do something about it. Hence, the reforms announced this week which seek to: widen the investable universe with more infrastructure and SME assets now qualifying; bring in less restrictive rules on how much of a fund should be in the form of ELTIF-eligible assets; enable the easier creation of ELTIF funds of funds and master feeder structures; improve investor protections; and create more liquidity options, with redemptions allowed prior to the end of a fund cycle.

These advances will undoubtedly be welcomed, although it hasn’t escaped attention – including in a note from law firm Macfarlanes – that one or two proposals appear to have been overlooked, including a rather complex secondary market liquidity matching mechanism and a new “green ELTIF”. Instead of having its own ESG-focused vehicle, the ELTIF will continue complying with existing EU ESG regulations such as the Sustainable Finance Disclosure Regulation.

Overall, the changes will no doubt increase the ELTIF’s appeal. But, given that they are unlikely to be implemented until 2025 – marking a decade since launch – it could be argued they’re not a moment too soon.

Write to the author at andy.t@peimedia.com