ELTIF 2.0 and semi-liquid funds: structure, minimums, redemption windows, feeder funds and layered costs

What you will learn

• What an ELTIF is and which rules changed with ELTIF 2.0 (in force since January 2024).
• How redemption frequency, notice period and liquid-asset buffer are linked in the EU technical standards.
• How feeder funds and funds of funds create layered costs.
• How to read a redemption promise realistically.

Explanation

An ELTIF (European Long-Term Investment Fund) is an EU fund label (Regulation (EU) 2015/760) for funds investing in private equity, private credit, infrastructure and real assets that may be sold to retail investors across the EU. The amended regulation, ELTIF 2.0, applies since 10 January 2024; the detailed regulatory technical standards (RTS) on redemptions entered into force in October 2024. Check the current text, rules change.

What ELTIF 2.0 changed

• The former €10,000 minimum investment for retail investors and the rule that limited retail investors with portfolios below €500,000 to 10% in ELTIFs were removed. Retail investors now go through the normal MiFID II suitability assessment (covered in the Investor Protection course).
• The minimum share of the portfolio in eligible long-term assets fell from 70% to 55%; the rest can be in liquid, UCITS-eligible assets.
• Diversification limits per single asset rose from 10% to 20% of capital for retail ELTIFs; funds sold only to professional investors are exempt.
• Fund-of-funds structures became easier (ELTIFs may invest in other ELTIFs, UCITS and EU alternative funds), and master-feeder structures are allowed when both are ELTIFs (the feeder holds at least 85% in the master).
• Borrowing for retail ELTIFs may reach 50% of net asset value (NAV), up from 30%.
• Open-ended, semi-liquid ELTIFs became possible, with redemption policies set by the RTS.

Redemption windows and the liquidity link

A semi-liquid fund promises limited redemptions while holding assets that cannot be sold quickly. The RTS make the manager choose one of two calibration methods. The simpler one links redemption frequency to a minimum liquid buffer and a maximum redeemable share:

The alternative method is a grid of notice periods (none to 12 months) against frequencies. Either way, more frequent liquidity means more cash in the fund: a monthly fund holding 25% in money-market instruments gives you 75% of the intended exposure while charging fees on 100%. Managers may add a minimum holding period and a notice period; notice periods under three months must be justified to the regulator.

Layered costs

Retail investors often reach private markets through several layers: platform, feeder fund, the ELTIF, and the underlying funds. Each charges a management fee and sometimes a performance fee. The PRIIPs key information document (KID) must show total costs including underlying funds, but add the layers yourself.

Worked example

Hypothetical example: you invest €100,000 for 8 years in a feeder fund that invests in an ELTIF of private equity funds. Assume the underlying companies earn 9.0% per year before any fees, costs are charged as a constant percentage of value each year, and there is no redemption before year 8. Taxes and entry fees are excluded.

1. Net return per year: 9.0% − 4.4% = 4.6%.
2. Value with no costs: €100,000 × 1.09^8 ≈ €199,256.
3. Value after costs: €100,000 × 1.046^8 ≈ €143,302.
4. Costs absorbed: €199,256 − €143,302 ≈ €55,954, about 56% of the gross gain.

A hypothetical institution paying only the underlying 2.0% would net 7.0%, or €171,819 after 8 years; the extra retail layers cost about €28,500 per €100,000. Whether 4.6% is attractive depends on what a liquid alternative, such as a global equity ETF, would deliver after its own small costs.

Common mistake

Practice activity

A semi-liquid ELTIF with €200 million NAV offers monthly redemptions under the simpler RTS method. (a) Minimum liquid assets? (b) Maximum redemptions in one month? (c) If investors request €60 million in one month, what share of each request is paid? (d) You hold €50,000 and request everything; how much do you receive that month?

Key takeaways

• ELTIF 2.0 removed the retail minimum and concentration cap, lowered the eligible-asset floor to 55% and opened fund-of-funds and feeder structures.
• The RTS tie redemption frequency to a liquid-asset buffer; more liquidity means less private-market exposure for the same fee.
• Add up all layers of cost yourself; in the example 4.4% per year absorbed more than half of the gross gain over 8 years.
• Redemption windows are capped and can be suspended; never rely on them for money you may need.

Next step

The next lesson collects the fee and liquidity traps across all alternatives: total expense across layers, gating, side pockets, exit discounts and what secondary markets really pay.