In this briefing, we take a look at what this next-generation ELTIF offers and recent developments in Ireland and at EU level.

Evolution of the ELTIF

The ELTIF is a type of EU alternative investment fund (“AIF”) which is managed by an alternative investment fund manager (“AIFM”). ELTIFs were intended to contribute to financing the European economy by channelling capital towards long term investments, in line with the European Union (“EU”) objective of smart, sustainable, and inclusive growth.

ELTIFs were first introduced in 2015 under Regulation (EU) 2015/760 (the “ELTIF Regulation”) as a new type of regulated investment fund to boost investment in infrastructure, real estate, social projects and private businesses such as small and medium-sized enterprises (“SMEs”). As part of the EU’s Capital Markets Union, ELTIFs were primarily designed as a retail-accessible AIF with the aim of increasing the availability of non-bank financing to the real economy by facilitating investments in more long-term and illiquid assets. A significant advantage of an ELTIF was its ability to market throughout the European Economic Area (“EEA”) on a passported basis to retail investors, unlike other types of AIFs which could only be passported to market to professional investors.

The original 2015 legislation meant that an ELTIF was subject to significant limitations in the type of assets that it could invest in and the diversification requirements which applied. These requirements resulted in a slow uptake of the ELTIF across the EU.

Thankfully, this has now changed and a number of these limitations have been removed. Following a 2020 review of the ELTIF Regulation by the European Commission (the “Commission”), revisions to the ELTIF framework were proposed in 2021 and adopted in 2023 via Regulation (EU) 2023/606 (referred to as “ELTIF 2.0”). ELTIF 2.0 broadened the scope of eligible investments, reduced investment thresholds, and removed unnecessary barriers to participation from retail investors. A summary of the key changes is set out in Appendix 1. These more flexible ELTIFs are expected to become far more popular than the predecessor with better protections and diversification rules for those who invest in the product.

Key features

• Focus on the real economy: The ELTIF aligns with the EU’s policy priority of channelling capital towards European long-term investments in the real economy.
• Professional and retail investors: The ELTIF facilitates investment by professional and retail investors in private assets.
• Regulated: The ELTIF is an EU AIF and so, in Ireland, it is authorised by the Central Bank of Ireland (the “Central Bank”) under both applicable domestic investment funds legislation and the ELTIF Regulation. Irish ELTIFs are subject to the ongoing regulation and supervision of the Central Bank.

Advantages of an ELTIF

• Professional and retail investors: While ELTIFs have distinct advantages, they have not yet been fully utilised by fund promoters. ELTIFs are suitable for both professional and retail clients, including private wealth investors, providing a relatively safer option for those interested in private market investments compared to other funds.
• Regulated investment vehicles: As ELTIFs are tailored for long-term, illiquid, and real assets, they are well-suited to clients seeking regulated investment vehicles.
• Closed-ended and limited liquidity options: As ELTIFs focus on long-term growth, they allow for exposure to long-term illiquid assets (to a greater or lesser extent depending on the structure) and are positioned to offer potentially higher returns through exposure to such non-traditional assets. ELTIFs may be structured or closed-ended or with liquidity features.
• Tax efficient: The Irish ELTIF offering allows asset managers to house long-term investments in a range of legal structures which benefit from favourable tax treatment available to Irish-domiciled regulated funds.

What legal form can an ELTIF take?

An ELTIF established in Ireland can be structured as one of the following:

i. an Irish Collective Asset-management Vehicle (“ICAV”);

ii. a public limited company (“PLC”);

iii. an investment limited partnership (“ILP”);

iv. a unit trust; or

v. a common contractual fund (“CCF”).

ELTIF Investments

Eligible Investment Assets

The percentage of an ELTIF’s capital that must be invested in eligible investment assets is now 55%. A list of these assets is set out in the ELTIF Regulation and included in Appendix 2 (each an “Eligible Investment Asset”). This provides for a broad scope of the real asset investment strategies that ELTIF managers can pursue. The framework ensures that ELTIFs invest in assets with defined characteristics to manage risk and maintain regulatory compliance.

Eligible Investment Assets can include equity, quasi-equity or debt instruments issued by qualifying portfolio undertakings (“QPUs”), loans granted by the ELTIF to QPUs with a maturity matching the ELTIF’s lifespan, and units or shares of other specified investment vehicles, including other ELTIFs.

Real assets, simple, transparent, and standardised securitisations (“STS”), and bonds issued under the EU Green Bond Regulation by QPUs also qualify as Eligible Investment Assets.

A “real asset” means any asset that has an “intrinsic value due to its substance and properties” and may provide returns, including infrastructure and other assets that give rise to economic or social benefit, such as education, counselling, research and development, and including commercial property or housing only where they are integral to, or an ancillary element of, a long-term investment project that contributes to the EU objective of smart, sustainable and inclusive growth.

Other Permitted Assets

An ELTIF may also invest up to 45% of its assets in assets which qualify as eligible assets under the UCITS regime (broadly speaking, liquid transferable securities and money market instruments and related derivative instruments) (“UCITS Eligible Assets“).

Fund of Funds

ELTIFs may be set up as a ‘fund of funds’, meaning ELTIFs can invest in other EU AIFs managed by EU AIFMs.

Feeder Funds

It is possible to establish a master-feeder ELTIF where the feeder ELTIF invests at least 85% of its assets in the master ELTIF.

Non-EU assets

An ELTIF may also invest in non-EU assets on the condition that the assets are not in a high-risk money laundering or uncooperative tax jurisdiction.

Borrowing

An ELTIF may borrow cash where such borrowing fulfils all of the following conditions:

• it represents no more than 50% of the net asset value of the ELTIF in the case of ELTIFs that can be marketed to retail investors, and no more than 100% of the net asset value of the ELTIF in the case of ELTIFs marketed solely to professional investors;
• it serves the purpose of making investments (provided that the ELTIF’s holdings in cash or cash equivalent are not sufficient to make the investment concerned) or providing liquidity, including to pay costs and expenses;
• it is contracted in the same currency as the assets to be acquired with the borrowed cash, or in another currency where currency exposure has been appropriately hedged; and
• it has a maturity no longer than the life of the ELTIF.

Borrowing arrangements fully covered by the ELTIF’s investors’ capital commitments (commonly known as subscription line financing) are excluded from the above borrowing limits.

Lifespan of an ELTIF

The lifespan of an ELTIF must be consistent with the long-term nature of the ELTIF and be long enough to cover both:

• the life cycle of its assets, measured by the economic life cycle and illiquidity profile of the assets concerned; and
• the stated investment objective of the ELTIF.

Redemption and Distribution Arrangements

ELTIFs are generally structured as closed-ended funds and therefore have a limited duration. However, ELTIFs may offer redemption facilities (limited liquidity) provided they are clearly set out in the redemption policy. The ELTIF’s prospectus or constitutional document must specify the date of the end of life of the ELTIF and may provide for the right to extend temporarily the life of the ELTIF.

ELTIFs can offer early redemption rights to its investors under certain conditions. For example, redemptions may not be granted before the end of a minimum holding period. The AIFM must be able to demonstrate that the ELTIF has in place an appropriate redemption policy and liquidity management tools that are compatible with the long-term investment strategy of the ELTIF. In addition, the overall amount of redemptions must be limited to a percentage of the ELTIF’s investments which qualify as UCITS Eligible Assets (see Liquidity Requirements below for further detail). If redemption requests exceed this limit, then redemptions will be granted on a pro rata basis to the amounts requested.

Where redemptions take place more frequently than on a quarterly basis, the AIFM is required to justify to the competent authority of the ELTIF the appropriateness of the redemption frequency and its compatibility with the individual features of the ELTIF. Similarly, where the notice period of an ELTIF is less than 3 months, the AIFM shall inform the competent authority, including reasons for such shorter notice period, and shall explain how that shorter notice period is consistent with the ELTIF.

The ELTIF may distribute to investors any proceeds that are generated by its assets unless the proceeds are required for future commitments of the ELTIF.

Liquidity Requirements

The maximum percentage of liquid assets that can be used for redemption requests is calibrated by the AIFM at its discretion, on the basis of one of two sets of factors set out in the Annexes to the ELTIF 2.0 regulatory technical standards (“RTS“):

• as a function of the redemption frequency and the notice period of the ELTIF (Annex I)
  – e.g., an ELTIF with a redemption frequency of quarterly and a 3-month notice period, can allow maximum redemptions of 33.3% of UCITS Eligible Assets held by the ELTIF, or
• as a function of the redemption frequency and the minimum percentage of UCITS Eligible Assets of the ELTIF (Annex II)
  – e.g., an ELTIF with a redemption frequency of quarterly must have a minimum 20% of assets as UCITS Eligible Assets and can allow maximum redemptions of 50% of such assets held by the ELTIF.

Annex I and Annex II contain detailed tables setting out the percentages based on various combinations of the differing factors.

To determine the maximum size of redemptions at a redemption date, the AIFM must apply the percentage of liquid assets that can be used for redemptions (referenced above) to the sum of: (a) UCITS Eligible Assets at the redemption date; and (b) the expected cash flows forecasted on a prudent basis over 12 months. It is worth noting that if the maximum percentage calculation is based on Annex II of the RTS, the ELTIF is required to maintain a minimum percentage of UCITS Eligible Assets whereas it is not if the calculation is based on Annex I factors.

Central Bank Authorisation

In light of the changes made at a European level through ELTIF 2.0, which is directly applicable in all EU Member States, the Central Bank carried out an assessment of the national framework for ELTIFs in Ireland and identified the need for a standalone chapter in the Central Bank’s AIF Rulebook that would support its implementation in Ireland.

The Central Bank avoided adding additional requirements to those laid down in the ELTIF Regulation and accordingly, the rules, including those on eligible assets, portfolio composition and diversification, that apply to Irish ELTIFs are as set down in the ELTIF Regulation and related technical standards.

The ELTIF chapter was added to the AIF Rulebook in March 2024 and includes requirements related to ELTIF-specific restrictions, supervisory, prospectus and general operational requirements, and annual and half-yearly reporting. Specific Central Bank ELTIF application forms provide for a streamlined authorisation process for Irish ELTIFs. These forms were updated in October 2024 to facilitate open-ended ELTIFs with limited liquidity.

In terms of the structure and authorisation of Irish ELTIFs:

• there are three categories of ELTIF available: (a) Professional Investor ELTIFs, (b) Qualified Investor ELTIFs, and (c) Retail Investor ELTIFs;
• an Irish ELTIF may be established within an existing or new Qualifying Investor AIF (“QIAIF”) or Retail Investor AIF (“RIAIF”) umbrella structure, subject to satisfying certain conditions;
• Professional Investor ELTIFs and Qualified Investor ELTIFs, where the relevant provisions of the AIF Rulebook are complied with, can avail of the Central Bank’s 24-hour approval process, under which such ELTIFs can be authorised by the Central Bank within 24 hours of filing the appropriate documentation; and
• Qualified Investor ELTIFs must comply with all of the provisions applicable to ELTIFs marketed to retail investors, notwithstanding that such funds can avail of the Central Bank’s 24-hour approval process.

Where an AIFM wishes to establish either a Professional Investor ELTIF or a Qualified Investor ELTIF which are open-ended with limited liquidity and avail of the 24-hour authorisation process it must make a pre-submission to the Central Bank prior to the requested authorisation and which addresses the following:

i) the possibility of redemptions during the life of the ELTIF,

ii) (where relevant) the possibility of redemptions which are more frequent than quarterly, and

iii) (where relevant) the provision of a notice period of less than 3 months.

Once cleared, such an ELTIF can proceed to authorisation in the normal course.

For Retail Investor ELTIFs, certain fund documents are reviewed by the Central Bank in advance of the final application being made for authorisation. Retail Investor ELTIFs are required to include details noted at (i)-(iii) above in its initial filing with the Central Bank. The review process is iterative and typically involves a number of drafts of the principal fund documents being submitted to the Central Bank for review. A Retail Investor ELTIF can be authorised once the fund documents have been cleared of comment and the prospectus and signed fund documents have been filed with the Central Bank seeking its authorisation.

For more information and advice on setting up an ELTIF, please contact any member of our Asset Management and Investment Funds Group.

Appendix 1

Key Changes to the ELTIF Regime

Topic	ELTIF 1.0	ELTIF 2.0
Eligible Investments	Required to invest (at least) 70% of capital in Eligible Investment Assets [See Appendix 2]. ———————————— Individual real assets must have a value of at least €10 million. Definition of real asset as “any asset that has value due to its substance and properties and may provide returns, including infrastructure and other assets that give rise to economic or social benefit, such as education, counselling, research and development, and including commercial property or housing only where they are integral to, or an ancillary element of, a long-term investment project that contributes to the EU objective of smart, sustainable and inclusive growth”.	Required to invest (at least) 55% of capital in Eligible Investment Assets. Increased scope on what qualifies as an Eligible Investment Asset. ———————————— No requirement on minimum value of real assets. Definition of real assets significantly revised to encompass all assets that have “intrinsic value due to [their] substance and properties”.
Market Capitalisation and New Opportunities	Ceiling of €500 million at time of initial investment.	Ceiling of €1.5 billion at the time of initial investment. Ability to conduct minority co-investment in investment opportunities. Eligible Investment Assets may be located outside of the EEA.1
Diversification	Up to 10% of the capital of the ELTIF could be invested in: • Instruments issued by/loans granted to any single Qualifying Portfolio Undertaking. [See Appendix 2] • Any single real asset. • Units or shares of any single ELTIF, European Venture Capital Fund (“EuVECA”), European Social Entrepreneurship Fund (“EuSEF”), UCITS or EU AIF2 managed by an EU AIFM. ———————————— Up to 5% of the capital of the ELTIF could be invested in: • Any UCITS Eligible Asset issued by one single body. • The risk exposure to any counterparty with respect to over-the-counter derivative transactions, repurchase agreements or reverse repurchase agreements.	Diversification limit increased to 20% for the same investments. ———————————– Diversification limit increased to 10% for the same investments.
Leverage	Limitation on borrowing of 30% of the capital of the ELTIF.	Ability to borrow up to 50% of the value of the ELTIF (where marketed to retail investors) and up to 100% of the value of the ELTIF (where marketed solely to professional investors).
Retail Barriers	Requirement for distributors and managers to carry out a suitability assessment of retail investors. ———————————— Requirement for distributors and managers to provide appropriate investment advice to retail investors. ———————————— Requirement to set up local facilities agent in each Member State where ELTIFs are marketed.	Removed.3 ———————————— Removed. ———————————— Removed.
Minimum Investment	Retail investors (portfolio < €500,000) must make a minimum investment of €10,000 in one or more ELTIFs and may not invest an aggregate amount exceeding 10% of their financial instrument portfolio in ELTIFs.	Removed.
Wind Down and Early Exit	Investors can request the winding down of an ELTIF where their redemption requests are not satisfied within a year of being made. ———————————— No early exit provisions.	Removed. ———————————— Possibility of an early exit of investors.4

¹ Being a non-EU or non-EEA country, provided it is not identified as high-risk third country for money laundering or listed on EU list of non-cooperative jurisdictions for tax purposes.

² Where those funds also invest in eligible investments and have not themselves invested more than 10% of their capital in any other collective investment undertaking.

³ Note that the suitability assessment required by MiFID II remains in force.

⁴ Subject to the requirement that there be a policy for matching potential investors and exit requests.

Appendix 2

Overview of the ELTIF Regime

Topic	ELTIF 2.0
Eligible Investments	Eligible Investment Assets a. equity or quasi-equity instruments which have been issued by a Qualifying Portfolio Undertaking (defined below); b. debt instruments issued by a Qualifying Portfolio Undertaking; c. loans granted by the ELTIF to a Qualifying Portfolio Undertaking with a maturity that does not exceed the life of the ELTIF; d. units or shares of one or several other ELTIFs, EuVECAs, EuSEFs, UCITS and EU AIFs managed by EU AIFMs; e. real assets; f. simple, transparent and standardised securitisations where the underlying exposures correspond to specified categories; g. bonds issued, pursuant to the EU Green Bond Regulation2, by a Qualifying Portfolio Undertaking. Qualifying Portfolio Undertaking A Qualifying Portfolio Undertaking shall be an undertaking that fulfils, at the time of the initial investment, the following requirements: a. it is not a financial undertaking, unless: (i) it is a financial undertaking that is not a financial holding company or a mixed-activity holding company; and (ii) that financial undertaking has been authorised or registered more recently than 5 years before the date of the initial investment; b. it is an undertaking which: (i) is not admitted to trading on a regulated market or on a multilateral trading facility; or (ii) is admitted to trading on a regulated market or on a multilateral trading facility and has a market capitalisation of no more than €1.5 billion; c. it is established in the EEA, or outside the EEA provided that the third country: (i) is not identified as high-risk third country listed in the delegated act adopted pursuant to Article 9(2) of the Fourth Money Laundering Directive3; (ii) is not mentioned in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes. UCITS Eligible Assets Eligible assets under the UCITS Directive4, which may include: – equities; – bonds; – money market instruments; – units of other UCITS; – deposits with credit institutions.
Market Capitalisation and New Opportunities	• Ceiling of €1.5 billion at the time of initial investment. • Ability to conduct minority co-investment in investment opportunities. • Qualifying Portfolio Undertakings may be located outside of the EEA.5
Diversification6	Up to 20% of the capital of the ELTIF could be invested in: • Instruments issued by/loans granted to any single Qualifying Portfolio Undertaking. • Any single real asset. • Units or shares of any single ELTIF, EuVECA, EuSEF, UCITS or EU AIF7 managed by an EU AIFM. ——————————————————- Up to 10% of the capital of the ELTIF could be invested in: • Any UCITS Eligible Asset issued by one single body. • The risk exposure to any counterparty with respect to over-the-counter derivative transactions, repurchase agreements or reverse repurchase agreements.
Concentration Limits8	An ELTIF may acquire no more than 30% of the units or shares of a single ELTIF, EuVECA, EuSEF, UCITS or of an EU AIF managed by an EU AIFM.
Leverage	Ability to borrow up to 50% of the value of the ELTIF (where marketed to retail investors) and up to 100% of the value of the ELTIF (where marketed solely to professional investors).
Minimum Investment	No minimum investment amount.
Early Exit	Possibility of an early exit of investors.8

¹Where those funds also invest in eligible investments and have not themselves invested more than 10% of their capital in any other collective investment undertaking.

² Regulation (EU) 2023/2631

³ Directive (EU) 2015/849

⁴ Directive 2009/65/EC

⁵ Provided it is not identified as high-risk third country for money laundering or listed on EU list of non-cooperative jurisdictions for tax purposes.

⁶ These diversification limits do not apply where the ELTIF is being marketed solely to professional investors.

7 Where those funds also invest in eligible investments and have not themselves invested more than 10% of their capital in any other collective investment undertaking.

8 This limit does not apply where the ELTIF is marketed solely to professional investors, nor does it apply to a feeder ELTIF investing in its master ELTIF.

9 Subject to the requirement that there be a policy for matching potential investors and exit requests.