WHITEPAPER
Why ELTIF now?
ELTIFs are becoming the investment vehicle of choice and we expect rapid growth in the coming years. Contact us to learn more about the ELTIF and how it might help you build more resilient portfolios.
ELTIF
Uncovering ELTIFs
Introduced in 2015, the ELTIF is a regulatory wrapper that gives closed-ended private assets funds a single passport to be marketed to private wealth investors across the EU. ELTIFs invest in long-term equity and debt investments in the real economy of the EU and beyond, while being under the protection of a dedicated European regulatory regime.
Why ELTIFs?
A design that breaks down barriers to entry.
The ELTIF is the first wrapper that allows a scalable and regulated pan-European distribution of private markets investments across different investor types. This stands in stark contrast to the traditional approach of creating individual wrappers per jurisdiction.
Moreover, the EU has recently approved changes to make the ELTIF vehicle even more attractive by providing greater flexibility regarding eligible assets and simplifying access.1
Driving Europe's economic growth.
The EU views the ELTIF as a powerful vehicle to boost investment in infrastructure and other long-term projects and businesses - both within the real economy of the EU and beyond. As such, investors in ELTIFs provide local companies and infrastructure with additional financing, driving economic growth within the EU.
Democratising private markets for European investors.
Adding private markets to a clients' portfolios may lead to increased diversification, enhanced returns and a hedge against inflation. It also provides the opportunity to invest in tangible and socially responsible undertakings, such as wind farms, schools, hospitals, or SMEs.
Risk: Diversification and asset allocation may not fully protect you from market risk.
1 EFAMA, February 2023.
POTENTIAL BENEFITS
Deep dive into the potential benefits of private markets
Paragraph-2,Headline-1,Paragraph-3,Image-1,Image-2
Paragraph-4,Headline-2,Paragraph-5,Image-3,Image-4
Paragraph-6,Headline-3,Paragraph-7,Image-5,Image-6
Paragraph-8,Paragraph-9,Content Block-1,Source-2,Headline-4,Paragraph-10,Image-7,Image-8
Diversification
Private markets investments are investments that are not readily available in public markets. Their underlying risks are uncorrelated or less correlated with traditional investments such as listed bonds or equities. The low correlation with traditional asset classes provides an opportunity to diversify portfolios, reducing overall risk exposure across investments.
Risk: Diversification and asset allocation may not fully protect you from market risk.
In Action – Investing in the real economy of the European Union
Hypothetical examples
Helping an Italian SME thrive while remaining independent
The capital could be put toward a privately-owned clothing company based in Italy which prefers to work privately without going to public markets. This new source of capital will help this Italian clothing company better realise its potential, drive growth, and stimulate employment while remaining independent.
Creating additional sources of energy for local communities in Denmark
The capital can also be used to help a wind farm developer who buys real estate and contracts with construction companies to build wind turbines. These turbines will generate electricity that can be sold to utility companies. This investment chain puts money directly into the 'real economy', creating employment and stimulating economic activity in the region.
Investing in renewable power can also drive measurable and comparable impacts on local communities. Other infrastructure projects examples include ports, streets, pipelines and/or communication networks.
Seeks stable income
Private markets investments, especially real assets (infrastructure and real estate), have the potential to deliver long-term stable cash yield throughout a varied market cycle.
In Action – Investing in the real economy of the European Union
Hypothetical examples
Helping an Italian SME thrive while remaining independent
The capital could be put toward a privately-owned clothing company based in Italy which prefers to work privately without going to public markets. This new source of capital will help this Italian clothing company better realise its potential, drive growth, and stimulate employment while remaining independent.
Creating additional sources of energy for local communities in Denmark
The capital can also be used to help a wind farm developer who buys real estate and contracts with construction companies to build wind turbines. These turbines will generate electricity that can be sold to utility companies. This investment chain puts money directly into the 'real economy', creating employment and stimulating economic activity in the region.
Investing in renewable power can also drive measurable and comparable impacts on local communities. Other infrastructure projects examples include ports, streets, pipelines and/or communication networks.
Inflation mitigation
Real assets investments are investments in physical assets such as wind farms, offices, warehouses, airports, etc. Investing in such 'real' assets may be a useful addition to the toolkits for those looking to mitigate the impact of inflation during inflationary environments. For example, infrastructure projects frequently have their revenues linked to an inflation index. This means that when the inflation goes up, the revenues will also go up, mitigating inflation.
In Action – Investing in the real economy of the European Union
Hypothetical examples
Helping an Italian SME thrive while remaining independent
The capital could be put toward a privately-owned clothing company based in Italy which prefers to work privately without going to public markets. This new source of capital will help this Italian clothing company better realise its potential, drive growth, and stimulate employment while remaining independent.
Creating additional sources of energy for local communities in Denmark
The capital can also be used to help a wind farm developer who buys real estate and contracts with construction companies to build wind turbines. These turbines will generate electricity that can be sold to utility companies. This investment chain puts money directly into the 'real economy', creating employment and stimulating economic activity in the region.
Investing in renewable power can also drive measurable and comparable impacts on local communities. Other infrastructure projects examples include ports, streets, pipelines and/or communication networks.
Enhanced return potential
In addition to their diversifying nature, allocations made to private market have the potential to increase a portfolio's total return as private markets have historically been able to outperform their public market equivalents:
Private Equity
Annualised return of private equity manager universe vs. global equities.2
Private Equity represented by the Burgiss Private Equity Manager Universe for the 20-year period ending 3/31/22. Burgiss data reflects quarterly time-weighted returns.
Private credit
Annualised return of private credit vs U.S. bonds.2
Private Credit represented by the Cliffwater Direct Lending Index. Private credit reflects rolling quarterly returns and most recent return from 9/30/15 (index inception) to 3/31/22 (latest available data). Refer to the end of the page for additional details of US aggregate which are US bonds indices.
Past performance does not guarantee or indicate future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an unmanaged index.
Asset class comparison is used to demonstrate private market performance compared to public market performance during comparable time periods. There are material differences in individual index/ manager universe methodologies (both public and private) and differences in the way public and private market performance is calculated; the comparisons shown may not fully reflect these differences. In general, public market indexes are unmanaged, represent a group of constituent securities which may change over time, reflect the reinvestment of dividends but do not reflect the deduction of any fees or expenses. Private market manager universes and indices often rely on self-reporting by managers. Therefore, there may be survivorship bias given that fund managers have discretion to report, or to discontinue reporting for various reasons (e.g. due to liquidation), and therefore private market manager universes and indices may reflect a bias towards funds with track records of success. Private Equity represented by the Burgiss Private Equity Manager Universe for the 20-year period ending 30/09/22. Burgiss data reflects quarterly time-weighted returns. Burgiss data is sourced from limited partners of these private funds and calculates results net of fees and carried interest, providing results that are updated and published on a quarterly basis. Private Credit represented by the Cliffwater Direct Lending Index. Private credit reflects rolling quarterly returns and most recent return from 30/09/15 (index inception) to 31/12/22 (latest available data). For more information on the individual indexes, please scroll down to the end of the webpage.
Two premiums drive Private Markets outperformance:
Illiquidity premia
As private market investments do not offer regular liquidity they are typically held for multiple years and deemed illiquid. However, this illiquidity may not be a bad thing as investors may benefit from the illiquidity premium, which tends to result in higher expected returns.
Risk: The investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the investments may not be able to realise the investment at the latest market price or at a price considered fair.
Complexity premia
As private markets investments are typically non-standardised, investment managers need to navigate material complexity when making an investment. The complexity premium is the compensation associated with negotiating, structuring and underwriting private deals, which requires scale and experience.
BlackRock Alternatives reviews approximately 9.000 deals annually with a ~5% deployment rate3 thanks to its scale and position in the global capital markets and information advantage.4
2 For additional information about the indexes/universe, please scroll down to the end of the page. Asset class comparison is used to demonstrate private market performance compared to public market performance during comparable time periods. There are material differences in individual index/ manager universe methodologies (both public and private) and differences in the way public and private market performance is calculated; the comparisons shown may not fully reflect these differences. In general, public market indexes are unmanaged, represent a group of constituent securities which may change over time, reflect the reinvestment of dividends but do not reflect the deduction of any fees or expenses. Private market manager universes and indices often rely on self-reporting by managers. Therefore, there may be survivorship bias given that fund managers have discretion to report, or to discontinue reporting for various reasons (e.g. due to liquidation), and therefore private market manager universes and indices may reflect a bias towards funds with track records of success. Private Equity represented by the Burgiss Private Equity Manager Universe for the 20-year period ending 3/31/22. Burgiss data reflects quarterly time-weighted returns. Burgiss data is sourced from limited partners of these private funds and calculates results net of fees and carried interest, providing results that are updated and published on a quarterly basis. Private Credit represented by the Cliffwater Direct Lending Index. Private credit reflects rolling quarterly returns and most recent return from 9/30/15 (index inception) to 3/31/22 (latest available data).
3 2022 year-end figure.
4 BlackRock, as of 30 December 2022.
In Action – Investing in the real economy of the European Union
Hypothetical examples
Helping an Italian SME thrive while remaining independent
The capital could be put toward a privately-owned clothing company based in Italy which prefers to work privately without going to public markets. This new source of capital will help this Italian clothing company better realise its potential, drive growth, and stimulate employment while remaining independent.
Creating additional sources of energy for local communities in Denmark
The capital can also be used to help a wind farm developer who buys real estate and contracts with construction companies to build wind turbines. These turbines will generate electricity that can be sold to utility companies. This investment chain puts money directly into the 'real economy', creating employment and stimulating economic activity in the region.
Investing in renewable power can also drive measurable and comparable impacts on local communities. Other infrastructure projects examples include ports, streets, pipelines and/or communication networks.
