Italy is the second largest market in Europe in the Eltif arena
Eltifs offer private and mass affluent clients, i.e., clients at the upper end of the mass market, the opportunity to invest in alternative investments with relatively low minimum amounts, starting at 10,000 euros
Eltifs offer investors a regulated vehicle to invest in private markets with minimum investments of less than 100,000 euros. After a slow launch, the Eltif market has gained ground, attracting the attention of many investors and the European legislature, which plans to introduce regulatory changes to simplify market access and strengthen guarantees and protections.
Eltifs: market volumes
The market for Eltifs, the European long-term investment funds, is experiencing an excellent period. According to some estimates (this is a study conducted by Scope Ratings), nearly four billion additional euros flowed into these products last year, with a total market volume of about 11.3 billion euros.
The highest volumes are seen in Eltifs on private equity, infrastructure, and private debt. In particular, Eltifs on infrastructure have higher importance as they are mostly targeted at institutional investors.
But the momentum is also very positive for private investors. With 2.5 billion euros of capital placed in 2022, distributed products have seen a widening of market share from 54 percent to 60 percent.
Italy is the largest market
As highlighted by the analysis conducted by Scope Ratings:
- France is the largest market (reaching a total of about 3.8 billion euros), characterized by an increase in volumes to private investors in the form of unit-linked life insurance policies
- Germany is a stable market that, although it did not experience particular developments in 2022, is in the process of launching new products aimed at foundations, family offices, and brokers
- Italy, on the other hand, is the largest market for distribution to private clients. About 95 percent of the 2.6 billion euros are products sold to private clients.
Tax breaks continue to affect Eltif distribution, particularly in Italy, positively. Tax incentives have proven to be excellent tools for stimulating investment by private customers and, perhaps, involving them in transforming the European economy toward a climate-neutral model.
As for Italy precisely, the Italian territory is estimated to be the second largest Eltif market in Europe.
Eltif demand continues to be dominated by private investors with relatively small average sales per customer of fewer than 100,000 euros.
As Scope rating highlights, the main drivers are tax incentives for products that invest in the Italian economy or innovations.
With so-called Pir (Individual Savings Plans), individuals resident in Italy benefit from exemption from capital gains tax (usually 26 percent) and inheritance tax, provided a minimum holding period of five years is met. An investor can enjoy tax benefits of up to 30,000 euros per year and up to 150,000 euros.
What are Eltifs
In 2015, the European Union created the European Long-Term Investment Funds (ELTIFs) to enable long-term investments in “illiquid” private market assets or unlisted investment properties. He hoped this would give new impetus to infrastructure projects by allowing private investors to finance them.
Eltifs offer private and mass affluent clients, clients in the upper segment of the mass market, the opportunity to invest in alternative investments with relatively low minimum amounts, starting at 10,000 euros. Another significant advantage of Eltifs is the possibility of pan-European distribution, which goes hand in hand with a cost-efficient approach for clients.
Good news on the regulatory side
The European Union is particularly interested in increasing the attractiveness of Eltifs to investors.
In this regard, after negotiations between the European Council, the European Commission, and the European Parliament, the reform of the Eltif regime was approved on February 15, 2023.
The Eltif regulation presents, among others, the following new features:
- the minimum investment in “eligible assets” is reduced from 70% to 55%, while the maximum investment in liquid assets (according to UCITS) is increased from 30% to 45%.
- investment in real estate is greatly simplified; a concrete social or economic benefit is no longer required. In addition, investments in green bonds and FinTech are possible. However, investments in financial
- companies over five years old have yet to be permitted
- less strict specifications will be introduced for professional investors
- it will be possible to make investments in target funds so that Eltifs can be designed as funds of funds.
