ELTIFs: private markets for private investors under the ELTIF 2.0 rules

In depth12 min read · 12 sources

An ELTIF (European Long-Term Investment Fund) pools investments that are not traded on an exchange: stakes in companies, loans, infrastructure and real estate. Since the ELTIF 2.0 reform, private investors can also invest without a statutory minimum amount. Here you will learn which rules have applied since January 2024, how redemptions with notice periods and caps work, what costs leave of the return and why smoothed valuations make the risk look smaller than it is.

What an ELTIF is

The ELTIF has existed since Regulation (EU) 2015/760. It is an alternative investment fund under EU law that an authorised management company may market throughout the EU, and it is intended to provide long-term capital for companies and projects away from the stock exchange. For a long time it remained a niche product. The reform by Regulation (EU) 2023/606 (2023), ELTIF 2.0 for short, has applied since 10 January 2024 and has relaxed the rules considerably. Older ELTIFs continue to be deemed compliant until 11 January 2029.

There are two structures. The closed-end ELTIF raises money during a subscription period, invests it over several years and pays out at the end of its life; before then, you cannot redeem your units. The semi-liquid or evergreen ELTIF has no fixed term, accepts money on an ongoing basis and allows redemptions on fixed dates, but only subject to conditions.

The rules since ELTIF 2.0

The most important changes (Heuking 2023; Regulation (EU) 2023/606 2023):

What an ELTIF may buy is set out in Article 10 in its new version:

• Company stakes and loans: equity, quasi-equity instruments, bonds and loans of qualifying portfolio undertakings. These are companies that are not listed or have a market capitalisation of at most €1.5 billion; financial undertakings only in exceptional cases.
• Real assets: assets whose value derives from their substance, such as infrastructure, real estate or machinery.
• Funds: units in other ELTIFs, European venture capital funds (EuVECA), European social entrepreneurship funds (EuSEF), UCITS and EU AIFs; also simple, transparent securitisations and green bonds issued by portfolio undertakings.
• Diversification when marketed to retail investors: at most 20% of capital in a single company, a single real asset or a single target fund, and at most 20% in securitisations. These limits do not apply to funds for professional investors only.
• The rest: up to 45% in liquid assets that a UCITS could also hold, such as bonds, equities and money market instruments. A semi-liquid ELTIF pays its redemptions out of these.

Before selling to private investors, the institution must carry out a suitability assessment under the rules of the MiFID II financial markets directive. If the fund's life exceeds ten years, a written warning is mandatory. During the subscription period and for two weeks afterwards, you can cancel at no cost, and you never have to pay in more than your commitment.

Fund life and liquidity

As a basic rule under Article 18, investors cannot redeem their units before the end of the fund's life. Anyone who wants to exit a closed-end ELTIF early has to find a buyer, either on a secondary market or through a matching mechanism, in which the fund pairs up requests to exit with requests to enter. There is no entitlement to a buyer.

A semi-liquid ELTIF may offer redemptions before the end of its life if it has a redemption policy with liquidity management tools that fits its long-term strategy, and if it limits redemptions to a share of its liquid assets. If requests exceed the limit, they are filled pro rata. The details are set out in Delegated Regulation (EU) 2024/2759 (2024), the regulatory technical standards of 19 July 2024, in force since 26 October 2024:

• Redemption base: liquid assets on the redemption date plus prudently estimated inflows over the next twelve months. Possible new subscriptions are not included.
• Maximum share: from Annex I, depending on the redemption frequency and the notice period, or from Annex II with a fixed minimum share of liquid assets.
• Notice period: if it is shorter than three months, the management company must justify this to the supervisory authority.
• Optional: a minimum holding period and anti-dilution tools such as anti-dilution levies, swing pricing or redemption fees.

Extract from Annex I: maximum share of the base per redemption date. Under Annex II, by contrast, the fund holds a minimum share of liquid assets at all times and in return may pay out more per date: annually a 10% minimum share and up to 100%, semi-annually 15% and 67%, quarterly 20% and 50%, monthly 25% and 20% on a monthly basis. In practice, such limits are called gates.

Example: a redemption with a cap

Costs and valuation

Every ELTIF must publish a total cost ratio: all costs relative to net asset value per year, to two decimal places and updated annually. Under Article 12 of the standards, this includes the set-up costs, the costs of acquiring assets, the management fee and the performance-related fee (performance fee), distribution costs and other costs such as the depositary, valuation and audit. If an ELTIF invests via target funds, their fees come on top. A further drag is the liquidity reserve, which yields less than the private assets.

There is no market price for assets without an exchange listing. Their value is estimated using models, comparable transactions or appraisals, often only quarterly and with a delay. Such estimates react sluggishly: the reported value follows the true value only partially. This valuation smoothing can be written as an exponentially weighted moving average:

This has a consequence for redemptions: if markets fall and the net asset value lags behind, those who redeem early receive more than their units are worth. This comes at the expense of those who stay. That is why the standards allow anti-dilution tools.

What the research on private markets shows

Most studies concern closed-end private equity funds of institutional investors in the US. Kaplan and Schoar (2005) found that, after fees, the funds on average earned roughly the return of the S&P 500, with large differences between funds; good managers tended to stay good across their follow-on funds. Phalippou and Gottschalg (2009) painted a bleaker picture: reported returns are overstated, partly because ongoing investments are valued too highly. After fees, the funds were on average 3% a year below the S&P 500, and 6% on a risk-adjusted basis; they estimated fees at around 6% a year. Using newer cash flow data, however, Harris et al. (2014) found that buyout funds outperformed the S&P 500 by 20 to 27% over their lifetime, more than 3% a year; venture capital came out ahead in the 1990s and behind in the 2000s.

The studies agree on costs. According to Phalippou (2009), private equity funds beat the stock market before fees and fall short of it after fees, and the contracts are hard to see through. Metrick and Yasuda (2010) calculate that around two thirds of managers' expected revenue comes from fixed fees that do not depend on performance.

On the illiquidity premium: Franzoni et al. (2012) show that private equity is exposed to the same liquidity risk as listed equities. The premium for it is about 3% a year and fully explains the measured alpha. The diversification benefit is therefore smaller than smoothed valuations suggest. Couts et al. (2024) confirm this for funds with illiquid assets in general: their returns are artificially autocorrelated, the usual corrections underestimate systematic risk, and their alpha is lower than thought. There is no long data series yet for semi-liquid ELTIFs sold to private investors, because the rules have only applied since 2024.

The market: how many ELTIFs there are

According to an analysis by Scope Fund Analysis (2026), there were 315 active ELTIFs in Europe at the end of July 2026. Since the new rules, 224 have come onto the market, compared with 94 under the old rules. In 2025, 114 new funds were added, and a further 49 by the end of July 2026. Around 35% of all funds invest in private debt, 28% in private equity and 16% in infrastructure. Most are domiciled in Luxembourg (172) and France (86). Of the 49 new funds launched in 2026, at least 26 were structured as evergreen funds and 14 as closed-end funds.

Taxes in Germany: just the framework

Whether an ELTIF is an investment fund for tax purposes depends on its legal form. Under § 1 para. 2 of the InvStG (2016) (Investment Tax Act), investment funds are all investment undertakings within the meaning of the Capital Investment Code (KAGB), so this also includes an ELTIF set up as a special fund (Sondervermögen) or as an investment company. In that case, the Vorabpauschale (advance lump-sum taxation) and the partial exemption (Teilfreistellung) apply as with other funds. Excluded under § 1 para. 3 are investment undertakings in the legal form of a partnership, such as a limited partnership (Kommanditgesellschaft); different rules apply to them.

The partial exemption under § 20 is 30% for private investors in equity funds, 15% in mixed funds and 60% or 80% in real estate funds, but only if the investment terms stipulate the required ratios. An ELTIF that mainly lends money does not reach an equity ratio, because loans are not equity participations. How the rules work is explained in the articles flat-rate withholding tax (Abgeltungsteuer) and partial exemption and Vorabpauschale. This is not tax advice; the fund's own information is what counts.

For advanced readers: what is behind the limits

The values in Annex I follow a simple pattern (our reading, not a formula from the regulation): with a redemption every f months and a notice period of n months, the maximum share is f / (12 − n), capped at 100%. Quarterly with three months' notice gives 3 / 9 = 33.3%, monthly with no notice 1 / 12 = 8.3%. Behind this is a one-year logic: in the 12 − n months in which requests can still come in, there are (12 − n) / f redemption dates; if the fund pays out the maximum share at each of them, the base is exactly used up after one year.

Smoothing can also be reversed. If you know α, the true return follows from r_t = (r*_t − α × r*_(t−1)) / (1 − α). In practice, α is estimated from the autocorrelation of the reported returns. The estimate is uncertain, and Couts et al. (2024) show that similar funds share a common smoothing that individually corrected series miss. For metrics, this means: at α = 0.6, the measured Sharpe ratio doubles, so 4% excess return at 20% volatility (0.2) becomes 0.4. And the measured correlation with equities comes out too low.

Limitations and common mistakes

• Liquidity with strings attached: redemptions are limited, and the limits bite precisely when many investors want to exit.
• A valuation is not a price: a calm price history does not mean the assets are calm. If you compare volatility or drawdown with equity ETFs, you are comparing estimates with market prices.
• Costs at several levels: total cost ratio, performance fee, front-end load, target funds and the liquidity reserve. Only all of them together show what is left.
• J-curve: closed-end funds incur costs from day one, while returns often only come after years. Early results say little.
• Managers matter: the differences between funds are large (Kaplan and Schoar 2005); an ELTIF is more of an active fund than an index product.

This article describes rules and research; it is not investment, legal or tax advice.

How Portfolio Lab calculates it

There is no dedicated tool for ELTIFs, and ELTIF units usually have no daily exchange price. For the underlying assets, Asset classes offers listed proxies as monthly series in euros: “Listed private equity” (@PRIVATE_EQUITY) from listed private equity companies, “Listed private credit (BDCs)” (@PRIVATE_CREDIT) from US companies that lend to mid-sized businesses, “Listed infrastructure” (@INFRASTRUKTUR) and “Listed real estate (REITs World)” (@REITS). The costs of these funds are already included in the series.

In the Backtest, they show the economic risk of such assets at market prices: with the full volatility and the closeness to the stock market that smoothed valuations conceal. The backtest does not model an ELTIF's notice periods, redemption limits, front-end loads or fees. How the series are built is described in the asset classes methodology.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.