Launching an ELTIF: How U.S. fund managers can access the EU market through a Third Party AIFM
*Frank van Kuijk, Benjamin Hitzges, Marco Loria and Sebastiaan Hooghiemstra of Loyens & Loeff Luxembourg SARL.
ELTIF Benefits and Market Access
The European Long Term Investment Funds (ELTIF) label aims to boost long-term investments in the real economy and facilitates the distribution of illiquid assets to EU based high-net-worth individuals (HNWI). A key advantage of ELTIF labelled funds is the EU marketing passport, which extends beyond institutional investors and includes EU HNWI. Such passport effectively entails that, if the ELTIF is registered for marketing in its EU home country, marketing access is granted to EU HNWI across all EU Member States.
AIFM Models for ELTIFs
U.S. fund managers (USFMs) looking to launch an ELTIF must appoint an EU-based authorized alternative investment fund manager (EU AIFM) with a license covering the ELTIF’s asset classes, such as private equity, private debt, or real estate.
For USFMs without their own EU AIFM, a host or third party AIFM (Host AIFM), in Luxembourg for example, offers a practical solution, accommodating a faster access to the EU market and avoiding costs for setting up and operating their own EU AIFM. The Host AIFM solution is therefore dominant for ELTIFs sponsored by USFM.
Once a Host AIFM is selected, USFMs must consider their preferred operational set-up.
Under the delegated portfolio manager model, the Host AIFM delegates the portfolio management (PM) to the USFM under a delegation agreement, executing the investment strategy while the Host AIFM retains risk management oversight to ensure compliance with the fund’s risk profile. Monitoring obligations exist but generally do not interfere with daily investment decisions, though pre-transaction risk management checks may still be required. Essentially, the USFM leverages the Host AIFM’s Luxembourg-based risk management framework. This arrangement requires that the USFM is SEC-regulated and that the CSSF is notified before delegation begins.
While it is possible for the Host AIFM to retain full responsibility also for PM, with the USFM advising on PM matters, this is less favored as USFMs typically prefer to retain control over PM through the delegated model.
Distribution in the EU
The USFM may develop the marketing strategy but will still need to appoint locally licensed distributors to reach private banks, wealth managers, and family offices that will, in practice, contact EU investors. These local distributors ensure that marketing to eligible HNWIs is conducted in full compliance with EU regulations. In Europe, a network of distribution platforms is often required to support the fund’s (sub)distributors. While these platforms do not actively market the funds, they provide effective conduits for investors into ELTIFs.
Choosing the right AIFM set-up and distribution strategy is therefore critical for USFMs seeking efficient market access, regulatory compliance, and successful engagement with EU HNWI investors.
Learn More
If you have any questions about the themes raised in this article or to learn more about Waystone’s third party AIFM management company solutions, please contact our team via the below.