At least, 55% of an ELTIF’s capital must be invested in “eligible investment assets”, while up to 45% may go into liquid assets. Both categories can include non-EU investments. However, standard diversification and concentration limits apply uniformly, regardless of whether the underlying assets are located inside or outside the EU.

ELTIFs must apply a look-through approach to assess the eligibility of assets. Assets held via intermediary vehicles should therefore retain eligibility if the underlying assets meet the ELTIF criteria.

The look-through also applies when investing in other funds. If the underlying assets of a target fund qualify, the ELTIF may invest in it. However, the target fund must (i) be established in the EU and (ii) be managed by an EU manager. It must also limit its fund-of-funds exposure to 10% of its capital, whether in EU or non-EU funds. Accordingly, for fund-of-funds structures, the EU status of the target fund remains decisive, even if a look-through suggests eligibility.

These rules facilitate EU fund-of-EU fund structures, useful for distributing to EU HNWIs. Since such funds are typically subscription-based rather than commitment-based, capital must be deployed quickly to avoid cash drag, a need fund-of-funds structures help address.

However, the rules substantially restrict the possibility of EU fund-of-non-EU fund structures. Investments in non-EU funds, including US products, cannot count toward the 55% bucket, and only mutual fund-like liquid products may count toward the 45% bucket.

This restriction is a missed opportunity under ELTIF 2.0: a direct investment in a qualifying U.S. asset is disqualified if made via a U.S. fund. As a result, the ELTIF label is not viable for strategies targeting U.S. closed-ended illiquid products. That being said, ELTIF labelled funds, in practice, often have a predominant focus on EU assets, as they resonate better with EU investor demands.

U.S. sponsors may find that the Part 2 UCI regime (without ELTIF label) offers more flexibility in terms of strategy than ELTIF labelled funds. While the Part 2 UCI regime lacks the pan-European marketing passport, it avoids ELTIF’s investment restrictions, making it a more suitable fit for exposure to ELTIF-ineligible fund vehicles.

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