Last updated: 17:00 / Tuesday, 14 June 2016
RAIF and ICAV Are Preferred

Investment Threshold Frustrates New Fund Vehicle

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Investment Threshold Frustrates New Fund Vehicle
  • Investors are reluctant to take-up European long-term investment funds
  • ELTIF regulation was implemented across the European Union in December 2015
  • The RAIF is the latest step in Luxembourg's drive to become a hub for alternative investment funds
  • The ICAV has become the vehicle of choice for both UCITS and AIFs domiciled in Ireland

The high investment threshold of European long-term investment funds (ELTIFs) is being blamed for limiting take-up by investors, according to the latest research of Cerulli Associates.

The global analytics firm headquartered in Boston says this hurdle is hampering take-off, even as European regulators seek to encourage investment from mid-sized pension funds and insurers by easing the Solvency II capital requirements for insurers with ELTIF exposure.

ELTIF regulation was implemented across the European Union in December 2015, introducing a new type of collective investment vehicle allowing retail and professional investors to invest in companies and projects that need long-term capital.

"Given the various tax treatments in different countries across the EU, this may be a harder sell than envisaged," says Barbara Wall, Europe managing director at Cerulli Associates. "There is greater optimism about the prospects for Luxembourg's reserved alternative investment fund (RAIF) and Ireland's collective asset management vehicle (ICAV), particularly if the latter is able to attract funds converting from other Irish investment funds structures."

Noting that it is still early days for ELTIFs, Wall says there are signs of interest from managers already investing in the infrastructure space and those looking to target the mass affluent market.

"Demand will depend on liquidity, how investments are viewed for capital risk and the treatment of the fund over the long term," says Wall.

The RAIF is the latest step in Luxembourg's drive to become a hub for alternative investment funds. It has very similar features to Specialized Investment Funds and SICARs, but does not need to be approved and is not supervised by the Commission de Surveillance du Secteur Financier (CSSF). The ICAV has become the vehicle of choice for both UCITS and AIFs domiciled in Ireland.

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