Money managers operating in Europe will have an easier time selling private market strategies to a broader group of investors due to changes in European Union laws.
Starting in the first quarter of 2024, smaller investors will gain access to top-tier alternatives strategies via a new fund-of-funds structure within the European Long-Term Investment Funds Regulation. The changes also include a reduction in the minimum investment amount, and sources anticipate the amendments will result in managers bringing in new clients from wealth and other retail channels.
The European Parliament approved the amendments Feb. 15. Long-term investment funds were launched in 2015 to channel money into long-term infrastructure and energy projects across the Continent. The updated rules will help managers offer access to private companies needing long-term capital in the transport and energy sectors, but also channel investment into hospitals, social housing, and small- and medium-size enterprises via new, more flexible fund structures.
The funds had struggled to gain traction, but sources expect the latest changes will garner more interest. Preparation is underway at a number of firms to offer a wider selection of funds and meet investor demand for private assets, sources said.
One of the changes is a reduction in the minimum threshold for investment in these private assets ELTIFs — with sources expecting wealth managers, retail investors, charities, endowments and smaller pension funds to take advantage of private markets access at a lower level of commitment. Investors will no longer have to invest a minimum of €10 million ($11 million), with the changes removing a threshold completely.
The update to the ELTIF regulation "unshackles" the constraints that were there previously, said Richard Bruyere, Paris-based managing partner and co-founder of consultant Indefi Group, in a telephone interview.
"It's good news for managers," he said, adding that managers will have an easier time coming up with funds and marketing private market strategies than before the changes.
The original ELTIF regulation generated about 80 fund launches, with limited demand due to regulatory constraints.
Mr. Bruyere added that the changes are good for traditional managers that "want to jump on the private markets bandwagon," due to the fact that the ELTIF regulation will no longer prohibit the use of fund-of-funds structures.
"If you are a traditional European manager, you have fund selection in-house because you are used to building third-party products for banks, your own multiasset products and insurance companies," he said, noting that managers can use capabilities they already have by repurposing them through a fund-of-funds structure. Investors will be able to access a wide range of off-the-shelf capabilities readily available to construct portfolios, he added.
Indefi estimates the ELTIF market in Europe will increase to between €50 billion ($60 billion) and €70 billion over the next five years from less than €10 billion currently.