Launched to much fanfare in 2015, the European Long-Term Investment Fund has struggled in the seven years since to live up to its billing. By October 2021, there were only 57 ELTIFs in the EU and these were heavily concentrated in just four markets: Luxembourg, France, Italy and Spain. Representing €2.4 billion of assets under management last year, ELTIFs are a drop in the ocean compared with the overall €6.8 trillion alternative investment fund market in the EU.
Speaking at the PDI Germany Forum earlier this week, Barbara Ellero, partner and head of private debt at Milan-based fund manager Anthilia Capital Partners, explained how, from the point of view of the Italian market, the ELTIF appears to have worked extremely well. Helped by capital gains tax and inheritance perks as well as good distribution networks in the country, ELTIFs have provided access for Italian retail investors to the alternative investment market for tickets as low as €10,000.
Ellero reminded us of the potential of the ELTIF and provided clues as to why the EU has recently opted to reform the vehicle rather than abandon it. One question posed at the Forum was whether small retail investors should really be dipping their toes into alternative investment at all during a period of so much volatility. Isn’t there a danger that they might get wiped out by a downturn? But, with the ELTIF, a lot of investor protection is built in: leverage is limited, diversification encouraged, and only certain types of product given the green light. In addition, investors can only commit up to 10 percent of their total assets.
Certainly, attempting to revive the fortunes of the ELTIF is entirely in keeping with the courting of the retail investor base that has been one of the big themes in private debt in recent times. There was a dissenting voice, however, which came from Ari Jauho, partner and chairman at Finnish fund of funds Certior Capital. He recalled raising his first private debt fund in 2015 and not being allowed to take retail money and said that, in his view, the beauty of private markets lay in giving entrepreneurship free rein rather than being guided by regulators. The ELTIF only encouraged more and more regulatory oversight.
But while the debate is interesting, it seems likely that the topic of retail investment will be an even bigger one in future iterations of our private debt events in Europe and elsewhere. The momentum seems unstoppable.
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