Unlike other Luxembourg fund regimes, the Part 2 UCI framework does not prescribe a fixed list of eligible investments. Instead, eligibility is determined by CSSF guidance, which in practice permits a broad range of strategies, including real estate, private debt, fund-of-funds, and private equity. However, when a Part 2 UCI opts for an ELTIF label, it must also comply with the ELTIF’s eligible investment rules. Access to the EU market therefore comes with the trade-off of adhering to more restrictive investment requirements.

An ELTIF must allocate at least 55% of its portfolio to “eligible investments” that align with the ELTIF’s core objective: long-term investments in the real economy. The remaining 45% may be invested in listed securities and cash-like instruments. Both buckets are subject to specific diversification and concentration limits, which will be addressed in a separate Snippet.

Eligible investments under the 55% bucket, generally, include (quasi-)equity or debt in qualifying EU and non-EU companies, real assets with stable cash flows (such as real estate), and certain EU-domiciled funds managed by an EU-authorized manager. Target funds must invest in eligible assets and maintain their fund-of-funds exposure below 10%. Not eligible are most financial sector entities, large listed companies, entities in “blacklisted” jurisdictions, and non-EU target funds such as those in Delaware or the Cayman Islands.

The ELTIF regime also imposes strict investment restrictions. Speculative strategies are generally prohibited. These include short selling, speculative derivatives, securities lending, and indirect exposure to commodities. Derivatives may, however, be used for hedging portfolio risks, such as currency risk.

When USFM consider raising capital via a Part 2 UCI with an ELTIF label, they should be aware of key limitations. ELTIF rules restrict the fund’s exposure to non-EU investments, especially non-EU funds. In addition, ELTIF feeder funds can invest only in ELTIF master funds.

For USFM wishing to invest in assets that are not ELTIF-eligible, one option is to use a separate compartment within a Part 2 UCI umbrella that does not carry the ELTIF label.

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