In the coming months, Brussels is set to outline a revamp of the Eltif, which started in 2015 with the aim of funnelling capital to infrastructure projects and other long-term investments that would boost European economic growth. Take-up has been slow.
While there has been a slight uptick in Eltif activity in recent months, much of that is tied to the overall growing appeal of alternative funds. In the low interest rate environment, “there has been very successful stories in the alternative investment space, and there has been more and more interest in entering these types of asset classes,” reckons Morales. “However, for some investors, there is no possibility because of the restrictions on the product. The beauty of the Eltif is the ability to offer this type of product to small investors. But the market was not prepared and the industry was not prepared” to make it happen.
The biggest shift Morales would want to see is a reevaluation of restrictions placed on individual investors. “The regulation created to protect retail investors, in a way, didn’t protect them because it didn’t give them the ability to invest in good products.” Eltifs and other alternative funds need to be “more accessible to investors in general. There has been a situation that’s a bit surrealistic.” With the goal of protecting retail investors, regulators put limits on punters with a total portfolio under €500,000 and set a high minimum investment amount, €10,000, for an Eltif. That in effect has “restricted them to wealthy individuals and institutional investors”. “We need to change this approach.” A high floor “is not even protecting an investor. Somebody could take the risk of doing something crazy to be able to invest. Why don’t we say a maximum €5,000 investment? So you cannot invest more than this. So we protect you by allowing some exposure to this product but up to a maximum. I feel this could be a better option… because we cannot continue to ban investors from having access to investment opportunities.”
“The image of the Eltif” also needs a refresh. “The Eltif is not recognised” as a brand or a top option by investors and industry players, “and this is where we need to make efforts.”
At the same time, the industry should not put form before function. “An investor is not going to an Eltif because it’s an Eltif.” Investors want to access the underlying assets. And fund managers opt for an Eltif only if it allows them to reach “a different investor base.” Other structures can work in infrastructure too, he says.
Infrastructure funds, Eltif or not, are “a good way for investors to inject money into the real economy. This is what we need at the moment,” states Morales. “It’s a win-win situation for everybody: for managers, for investors and for economies, too.”