Impact Policy Tracker Policy

European Long-Term Investment Funds (ELTIFs) Regulation



Established in 2015 through Regulation (EU) 2015/760, European Long-Term Investment Funds (ELTIFs) are a category of Alternative Investment Funds (AIFs) managed by licensed European Alternative Investment Fund Managers (AIFMs) and designed to channel non-bank capital into the real economy, including infrastructure projects, SMEs financing, and other long-term investments. Despite their potential, the uptake of ELTIFs remained limited, with only 28 funds across the EU by October 2020, largely due to restrictive investment and marketing rules. Recognising these shortcomings, the European Commission launched a review in 2021, resulting in the adoption of an amending regulation in March 2023, which entered into force on 10 January 2024 - widely referred to as “ELTIF 2.0.”.

ELTIF 2.0 introduces more flexible investment rules for managers, broadens the scope of eligible assets (including green bonds and a wider range of company types), allows funds of funds, eases borrowing limits, and, crucially, removes key barriers for retail investor participation. Since the European Commission published its proposal, the number of ELTIFs has more than quadrupled, rising from 28 in October 2020 to 125 by June 2024. They have been established across several Member States, including Luxembourg (84), France (20), Italy (13), Ireland (6), and Spain (2).



Highlights

  • Lowering investment thresholds for retail investors: ELTIF 2.0 significantly lowers barriers for retail participation in long-term investment funds. Whereas the original regulation required a minimum investment of €10,000 and capped individual exposure at 10% of an investor’s portfolio, the amended rules remove these constraints, opening access to a broader range of EU retail investors. In addition, eligibility rules for third-country companies have been eased, and green bonds are now eligible, further expanding the range of investable assets and opportunities for retail investors to channel capital into sustainable and high-impact projects.

  • Cross-border retailisation of alternatives: ELTIF 2.0 is a game-changer for retail investors in the EU, giving alternative asset managers unprecedented access to EU retail clients across all 27 Member States. It is also the only alternative investment fund vehicle with access to the EU retail marketing passport, enabling cross-border distribution of long-term investment funds and expanding opportunities for retail investors.

Government’s Role:
Market Regulator


Country:
European Union

Policy Type:
Facilitating Retail Investors’ Participation in the Impact Economy

Year: 2015

Responsible Institution:
European Parliament and European Commission

Additional information:
ELTIF 2.0 essentials: unlocking access of EU retail investors to private capital

Facilitating Retail Investors’ Participation in the Impact Economy

Retail investors represent a significant yet often overlooked source of capital for the impact economy. While most discussions on mobilising private capital focus on institutional investors, retail investors collectively hold +USD 100 trillion1 in savings, particularly in countries with high household saving rates. Unlocking even a fraction of this potential could channel billions towards projects that foster economic growth and deliver positive social and environmental outcomes.

Despite this potential, retail participation in sustainable and impact investing remains limited due to several structural barriers, which include - but are not limited to- : (i) low public awareness and visibility of available opportunities, (ii) the limited number of publicly listed impact companies - often due to their smaller size - making them inaccessible through mainstream investment channels, (iii) high minimum investment thresholds, and (iv) liquidity constraints, as many impact investments, particularly in unlisted companies or private markets, involve long lock-in periods that may not suit individual investors’ needs.

Governments can play a key role in addressing these barriers by lowering investment thresholds through proportionate regulatory frameworks (as in the EU’s ELTIF Regulation), developing more flexible impact investment vehicles to address liquidity concerns, establishing reliable labelling schemes for sustainable and impact products, opening regulated avenues for retail investors to invest in unlisted impact companies (as seen in the UK), and tackling sustainable and impact investment literacy gaps through awareness campaigns.



1 Financial Times Group (2022). “The Individual Imperative: Retail Impact Investing Uncovered”. Available at: https://sri360.com/wp-content/uploads/2022/10/FT_Focus-IMPACT_V10-5.pdf