What you should know about the European ELTIF 2.0 AIF framework

A European Long-Term Investment Fund (ELTIF) is a “type of collective investment framework allowing investors to put money into companies and projects that need long-term capital,” as described by the European Commission website.

ELTIFs are designed to increase the amount of non-bank financing available for companies investing in the real economy of the European Union. However, there hasn’t been much consistency among the funding vehicles in the member states where these exist.

Last year, a regulatory amendment went into effect – ELTIF 2.0 – designed to help ELTIF-approved European alternative investment funds (AIFs) raise capital and invest in a broader scope of qualified assets.

“Through this revision, the EU lawmakers have remedied the fundamental weaknesses of the original ELTIF regulation and thus created an alternative investment fund product that can truly propel growth of alternative assets in the portfolios of retail investors,” states an EY article on the topic.

With this updated framework now in place, it’s important for U.S. and European asset managers interested in ELTIF opportunities to understand the new landscape. We spoke with two of our ELTIF experts at U.S. Bank, Bardad Sambou, managing director of operations and client service for U.S. Bank – Luxembourg, and Maria Victoria Medina Fernandez, head of fund accounting for U.S. Bank – Luxembourg to learn more. They discuss some of the key changes, how the market is reacting and what clients are doing to address the new requirements.

Q: What are some of the key features of the new ELTIF 2.0 framework?

Sambou: The 2.0 version of ELTIF allows investment in a broader range of assets, increased borrowing limits and early-exit options.

This update lifts several barriers to retail investment, which now makes the product more attractive. A key factor for success will be operational readiness – both on the asset manager and asset servicer sides. The hybrid nature of the investment portfolio and the semi-liquid nature of the product require a review, almost a rethinking, of the operational value stream.

Historically, asset service providers have used different fund accounting and transfer agency technologies for servicing liquid strategies (e.g., UCITS) versus close-ended alternative funds. But when you consider trade flows, consolidating liquid and illiquid assets, valuation, connecting the transfer agent system to the distribution network, automating liquidity management tools, etc. – all these factors add layers of complexity in the overall operating model.

Q: How is the market reacting to the changes?

Fernandez: Overall, European institutional investors are optimistic, commending lower investment thresholds, broader retail access, ESG alignment and simplified administrative processes. However, concerns about long-term liquidity constraints and compliance complexity remain. Meanwhile, U.S. stakeholders are intrigued by the potential for global collaboration, exposure to European projects and ESG-driven opportunities but remain cautious due to limited awareness, currency risks and the region-specific focus of ELTIFs. Bridging knowledge gaps, resolving operational challenges and fostering collaboration will be crucial to unlocking ELTIF 2.0’s full potential for more inclusive and impactful long-term investments.

Q: What steps are clients taking to address the new requirements?

Sambou: Fund managers are proactively adapting to the updated ELTIF 2.0 regulatory requirements by reassessing their investment strategies and operational frameworks. Key steps include revising fund documentation to align with the regulatory changes, ensuring compliance with revised eligibility criteria and expanding investment scope to include a wider range of asset classes. Many are also enhancing their distribution strategies to accommodate the broader retail investor base enabled by the regulations, while simultaneously implementing robust risk management tools to address the updated guidelines.

Additionally, fund managers are investing in staff training and engaging with legal and compliance experts to ensure a seamless integration of ELTIF 2.0 requirements, all while maintaining a strong focus on delivering value to their investors.

Q: What are some of the pain points you’re seeing?

Sambou: Without simplifying the operating model first, the operational cost to adapt to this type of product could be high. Real-time information, especially in terms of liquidity, will be invaluable. Managers must understand the importance of sustainability and compliance in their investment strategies. And they should recognize the need for operational readiness to meet the evolving landscape influenced by ELTIF 2.0.

Q: What are some additional considerations for asset managers interested in ELTIFs?

Fernandez: Luxembourg is the domicile of choice for ELTIFs, making Luxembourg-based providers well-positioned to service this type of fund. Asset managers should expect flexibility from their provider in terms of trade flow and communication. Implementing liquidity tools (e.g., lock-out periods, gates, etc.) requires high-quality, transparent reporting – and here, the asset servicer plays a significant role.

Q: What should asset managers look for in an alternative investment service provider?

Sambou: I think agility and flexibility are key. At U.S. Bank, we’re a boutique-type asset servicer, which makes us very nimble as an organization – especially from an operational standpoint. We’re able to give unmatched care and attention to each of our clients, and we continuously engage with them to understand their changing needs and expectations. Additionally, as a bank, we can partner with the asset managers and provide liquidity facilities, which is crucial for that type of product. The investment compliance process is also an area where we can provide assistance.

Q: How is U.S. Bank prepared to service ELTIFs from an operational standpoint?

Fernandez: In Luxembourg, we have a dedicated team with a technology background that focuses on customization in terms of information flow, reporting and processes. Our core technology infrastructure already handles hybrid products, and our experience has taught us how valuable and necessary it is to have flexibility and customization when it comes to reporting.

In terms of fund accounting and transfer agency, we use the same core technology for both liquid and illiquid strategies, which simplifies the operating model. We’ve built interfaces to adapt to the investment strategy regarding the control environment and the reporting requirements. And our staff benefits from experience gained in servicing both UCITS and alternative funds in Luxembourg. The same team works with both.

Whether you’re a large, established firm, or a specialized shop looking to take your business to the next level, we have a full spectrum of alternative fund servicing solutions to help accelerate your success. To learn more, contact us or visit our website.