Outsourced Support for Effectively Navigating ELTIF 2.0

The first iteration of the ELTIF, which came online in December 2015, initially received press and industry plaudits for giving retail investors an avenue to allocate to alternative asset classes that long had been the domain of institutional investors.  The excitement at the outset then tapered off on the back of the limited array of possible types of investments, threshold for entry and regulations.

ELTIF 2.0 broadens the scope for investors, namely helping to bring more allocators to alternative asset classes.  More generally speaking, however, the regulatory changes that make up the 2024 version of the regulations mean new strategies for asset managers to consider and explore.

There are many factors which will determine the success of ELTIF 2.0.  A key consideration for managers who market this product will be their choice of partners in launching the product.  Underlying this, ensuring managers partner with the right service providers with expertise in this asset class and a record of excellent investor service will ensure a bright future for the new ELTIF 2.0.

ELTIF 2.0: KEY CHANGES

Some key regulatory changes for ELTIF 2.0 include:

• Widened scope of eligible assets: ELTIFs may invest in real assets, e.g., those assets whose value is derived from substance; and without the €10 million (US$10.8 million) minimum threshold that was previously in place.

• ELTIFs may invest in Simple, Transparent, and Standardised (“STS”)-labelled securities, such as mortgage-backed securities, commercial, residential and corporate loans or trade receivables.  They can also invest in green bonds, specifically those issued according to the Regulation of the European Parliament and of the Council on European green bonds.
• Third-country assets: ELTIF 2.0 affords investors a more global approach to portfolio construction. ELTIFs may now allocate to debt, equity or lending to “qualified portfolio undertakings” in third countries, as long as that jurisdiction has not been deemed by European regulators as “non-cooperative” or “high-risk” with regards to tax information exchange.
• ELTIFs now may invest in Undertakings for Collective Investment in Transferable Securities (“UCITS”) and other types of EU Alternative Investment Funds (“AIFs”), as long as those funds are otherwise permissible under the January 2024 update.
• The ELTIF 2.0 text effectively allows for the establishment of fund-of-fund ELTIFs and ELTIF master-feeders.

LATEST REGULATORY DEVELOPMENTS

On 11 March 2024, the Central Bank of Ireland published their feedback statement on Consultation Paper 155 (CP 155) alongside an update to the AIF Rulebook (with a new Chapter 6 for ELTIFs) and new application forms for ease with the application process.  That same day, the European Commission published its decision to adopt the draft Regulatory Technical Standards (“RTS”), but with amendments as outlined in a letter to the European Securities and Markets Authority (“ESMA”).

On the investor side, putting funds into ELTIF structures should be that much simpler, particularly for high-net-worth investors.  In the meantime, market observers are waiting to see how implementation and adoption will pan out in the medium to long term.

HOW THE MAPLES GROUP CAN HELP YOU STEER ELTIF 2.0

Managers who are thinking about launching an ELTIF should look for an AIFM and a fund administrator with a strong track record in providing services to private assets, relevant fund structures and with the access to the latest in technology.

The Maples Group provides fund administration services to an array of investment funds investing in growth capital, private credit, real assets, infrastructure and intellectual property assets and across all relevant fund structure.  The expert teams at the Maples Group bring deep expertise backed by award-winning technology and reporting infrastructure for industry-leading service across the full fund cycle.  Many ELTIFs, including recent launches by large managers have chosen third party AIFM structures to manage their products.  MPMF Fund Management (Ireland) Limited (“MPMF”), the Maples Group’s Central Bank of Ireland-authorised AIFM, has a full complement of resources and staff to execute and monitor key management functions required under the relevant regulations, bringing deep experience across operations, risk management, finance, and regulatory compliance.

The long-term nature of the ELTIF makes the structure a natural choice for investment in sustainability focused products and infrastructure.  MPMF also provides a full range of services for companies looking to develop and broaden their sustainability offerings and compliance with ESG regulations such as the Sustainable Finance Disclosure Regulation (“SFDR”) for Article 6, Article 8, and Article 9 funds.  This includes the Maples Group Sustainability Platform ICAV, dedicated to hosting sustainable funds looking for distribution solutions in the EU.  The platform is an Irish Collective Asset Management Vehicle (“ICAV”) an umbrella fund structured especially for ESG funds, and allows for SFDR compliance and European distribution.  The ICAV may be comprised of ELTIF and non-ELTIF sub-funds.

Together with our legal team, we provide a comprehensive service solution across the full fund life cycle.  The Maples Group has leading private assets fund legal practices in the key EU fund domiciles of Ireland and Luxembourg, as well as other popular domiciles for private asset vehicles such as the Cayman Islands, BVI and Jersey.  This gives us a unique vantage point from which to advise on legal, regulatory and tax considerations in tailoring long-term investment vehicles to suit international asset managers and their investors, within the ELTIF regulatory restrictions.