Since the beginning of the year, German capital management companies (KVGs) have been able to launch the new European Long-Term Investment Fund product line. Eltifs offer easier access for non-professional investors to mostly illiquid private markets.

The feedback from the industry is clear. Asset managers want to seize the opportunity, and many are launching or announcing so-called Eltif 2.0 vehicles onto the market.

At the centre of this activity is Frankfurt-based fintech Portagon, which operates a distribution platform for all kinds of private markets products that are allowed to be marketed. The founders and managing partners of the start-up, Jamal El Mallouki and Johannes Laub, started in 2015 under the brand Crowddesk. „Right from the start, we focussed on non-listed products with the vision of making alternative investments accessible to private investors, and today we have established Portagon as a distribution platform through which large asset managers can approach retail investors,“ said Laub in an interview with Börsen-Zeitung.

Shares can also be subscribed directly with banks and asset managers via the platform. As Portagon only provides access, the fintech does not require any licences. The range of possible private markets products extends from pure private equity ETFs to infrastructure vehicles and private debt funds – an asset class that has recently received large inflows of funds. However, as asset managers in private equity (PE) are confronted with increasingly demanding institutional investors, despite persistently good returns, they have increasingly opened up to direct retail funds.

Wealthtechs such as Moonfare were the first to provide investors with access to PE funds – and are now among the first providers to launch an Eltif on the market. The Moonfare Eltif is on the Portagon platform. The onboarding process has been running since May, and distribution is now starting via asset managers, family offices, independent financial advisors (IFAs) and the company's own app.

Already at the beginning of June, Neuberger Berman opted for Portagon to distribute the „NB Direct Private Equity Fund 2024“.

The vehicles launched in accordance with the new Eltif regulation are also categorised as Alternative Investment Funds (AIFs), El Mallouki explains. He expects around 40 Eltif products to be launched this year, and a third have already gone live. „This is a huge development in the AIF sector," he says. "When building up our pipeline, we naturally keep an eye on the quality of the products; for example, an asset manager's many years of experience in structuring such products, and the resulting returns, are important parameters.“

Although there are also semi-liquid products that, like open-ended property funds, allow funds to be withdrawn after just two years, El Mallouki is not a fan of them. „Anyone investing in this asset class should be prepared to make a long-term commitment – for return reasons alone," he says. „Because withdrawing money prematurely always has a negative impact.“

Semi-liquid concepts always make sense if there are regular returns, as is the case with private debt. The expectations of retail investors should therefore be that an investment in an Eltif will generally run for the full term of around ten years.

According to the two founders, Eltifs are basically sold free of advice. However, a suitability test is mandatory, which can be carried out completely digitally. As El Mallouki noes, a Mifid advisory rule was even overridden. „It is rare for such deregulation to take place – but that is exactly what we have seen with the Eltif regulation", he says. "And it's good that asset managers and their distributors have gained some freedom. That is also one of the reasons why so many portfolio managers are now venturing into the Eltif segment.“

There is another special feature: the new Eltifs are not subject to custody requirements, which means they do not have to be booked into a custody account. This saves costs as there is no intermediary. However, Portagon can also represent custody account transfer. According to El Mallouki, the transfer to a traditional custody account structure would simplify matters such as tax accounting.

An initial interim assessment of the new Eltif segment is encouraging. Even before Moonfare, the digital asset manager Liqid based in Berlin had made an Eltif available. Private investors can invest upwards of 20,000 euros in co-investments with Neuberger Berman, which manages the fund together with Liqid.

Just two months after its launch, Liqid has already raised 50 million euros in its Eltif. Customer deposits flow directly into selected investments as co-investments. An annual return of 12% after costs is promised.

The management fee for Liqid's Eltif is 2.49% and the profit share is 12.5%. For products for institutional investors, a 2% management fee and 20% profit participation are standard.

Partners Group has also already launched several funds. Scalable Capital announced a first Eltif, which is expected to be launched this year, and product and partner selection is currently underway. A cooperation with shareholder Blackrock as investment management company would be logical. And it is to be expected that other German wealthtechs will enter the market with their own Eltifs alongside the traditional asset managers.