ELTIF 2.0 – Practical Considerations within a New Landscape

May 16, 2024
  • Investor Services
What investors and managers need to know before entering the ELTIF regime.

ESMA recently released revised technical standards in response to the EC’s proposals on liquidity management tools for ELTIFs. While not fully accepting the EC recommendations, ESMA has reduced the minimum percentage of liquid assets based on notice periods and redemption amounts. The impact of these revisions remains to be seen, but we can reasonably assume it could accelerate launch volumes and AUM.

BBH recently hosted an event in Dublin with Neil Hoyne from Ares Wealth Management Solutions and Des Fullam from Carne Group where we discussed the imperatives that investors and managers need to consider when entering the ELTIF regime.

KEY FEATURES THAT ARE ATTRACTIVE FOR INVESTORS

  • Liquidity or capital access - e.g. daily liquidity for Ucits vs 2% monthly / 5% quarterly restrictions.
  • Entry levels or minimum investment size - e.g. $100m for institutional investors vs $1k/$10k for retail investors.
  • Portfolio composition offering lower levels of volatility associated with private markets.
  • Ability to have Evergreen style limited duration open-ended structure - e.g. ELTIF 2.0 vs closed ended structures with ramp up / ramp down phases.
  • Ability for retail investors to access asset classes that are harder to get exposure to - e.g. private equity and private debt.

LIQUIDITY MANAGEMENT REMAINS THE MOST PRESSING TOPIC

  • Portfolio strategies are evolving to support a semi-liquid asset mix, with income generating strategies becoming increasingly important.
  • This is supported by shifts toward more active management of liquidity sleeves, including daily trading and valuation of such assets, and a focus on cash flows across structures.
  • Redemption limits continue to be the most popular tool for semi-liquid funds but can be viewed by investors as limiting.
  • Making liquidity visible to the regulators, including through access to liquidity management tools that may never be used, is key.

CRITICAL RISKS TO BE MANAGED INCLUDE

  • Liquidity mismatches between the terms offered to investors and those of the underlying assets.
  • Applying liquidity management tools consistently so that all investors in the fund are treated equally.
  • Transparency of valuation policies for hard to value assets.

EDUCATION IS NEEDED ACROSS THE BOARD

  • Retail investors need a deeper understanding of the product features and potential risks involved with ELTIF 2.0 investments.
  • Distributors must be educated about how the product will actually operate – when NAVs will be struck, how orders should be instructed, and the liquidity offered.
  • ELTIFs offer diversification as part of a broader portfolio.

THE RIGHT PARTNER SELECTION IS A MUST

  • Fund administrators can assist in designing efficient operational flows, smart product design and a smooth launch.
  • The right distribution partner can explain the product to investors.
  • An established Management Company brings expertise and can accelerate time to market.

For anyone considering an ELTIF, the major areas of focus - liquidity management, investor education, product design and partner selection – are critical to success.

Interested in learning more about ELTIF 2.0 or other alternative fund structures?

Contact Us

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