"ELTIFs – Democratization of private markets or just old wine in new bottles?"

Investors in public and private markets live in parallel worlds: for most, stocks and bonds—whether as securities directly or via funds and ETFs—are the classic investment vehicles. You buy an ETF from the broker of your choice and within seconds you can see the number of shares, costs, and price in your securities account—all transparent, almost in real time. Private markets tick differently: professionals are usually involved here. According to the so-called Yale model (developed by David Swensen), foundations and large investors focus on alternative investments outside the stock market, such as real estate, infrastructure, and private debt. Their central principle: broad diversification and a high proportion of illiquid assets for long-term capital growth.

Now, the elite private market club is to be democratized—through ELTIFs. Introduced in 2015 and relaunched in 2024, these regulated funds invest long-term in “illiquid real assets,” including infrastructure, private equity, real estate, and private credit. ELTIFs are semi-liquid: redemptions are often only possible on a quarterly basis and within the framework of “gates.” Those who need short-term liquidity must give up to twelve months' notice of redemptions. There are exceptions, but what these funds have in common is that they cannot be traded as liquidly as funds, stocks, bonds, and ETFs.

ELTIFs promise access to a booming market for infrastructure investments, particularly in alternative energies. But sales are sluggish: while equity and bond funds attract billions, ELTIFs raised only around €1 billion in the first half of the year, according to expert estimates. Why is this?

What product providers tout as the “democratization of investment” reminds many people more of a problematic form of investment: open-ended real estate funds, which have stumbled twice in two decades because investors wanted to trade illiquid assets like liquid funds. Many investors have also had bad experiences with closed-end funds. Even if these are not directly comparable with today's much more diversified ELTIFs, the question of liquidity remains central when illiquid assets are involved. Added to this are further concerns surrounding private assets.

Private equity finds itself in a difficult situation: the traditional exit via IPOs rarely works, and the IPO pipeline is stalling. Critics fear that providers are using ELTIFs to pass on hard-to-sell investments to private investors who spurn institutional investors. Although minimum standards exist thanks to regulation, valuations of illiquid assets are complex and can hardly be captured by traditional fund analysis. In addition, conventional fund databases find it difficult to categorize ELTIFs meaningfully and map risk indicators.

The basic idea behind ELTIFs—making long-term investments in real assets with attractive cash flows accessible to private investors—is appealing. Those who think long term can forego daily liquidity in favor of stable returns. However, the reality is often different: many investors act more short-term, and valuing illiquid investments is a challenge even for professionals. 

Providers should therefore demonstrate patience and build trust over the long term through long-term track records. Investors who are interested in illiquid investments, on the other hand, should approach the subject step by step—there is certainly no need to rush.

By Ali Masarwah, 22 September 2025, © envestor.de