LTAFs and ELTIFs offer asset owners easier access to private markets investments that deliver returns and impact – but due diligence remains essential.
Across the UK, EU and beyond, the need is clear for new investment channels to leverage savings in pursuit of long-term growth and sustainability.
In other words, innovation in the finance sector is needed to drive innovation across the whole economy, with the public and private sectors having to work in closer harmony.
This week saw further evidence of this with the launch of the UK National Wealth Fund’s five-year investment plan. The aim is to deploy £100 billion (US$137.7 billion) of public and private finance to create 200,000 jobs, accelerate the clean energy transition, and deliver returns to investors and taxpayers.
Critically, the plan seeks to draw private sector investment into the infrastructure, companies and supply chains of strategically significant sectors including ports, energy storage, steel, low-carbon power generation and transmission, electric vehicles, carbon capture and hydrogen.
With the UK’s largest pension providers already signed up to increase investment in the UK via private markets channels, the conditions are ripe for rapid expansion in demand for Long-Term Asset Funds (LTAFs).
Introduced for institutional investors in 2021 – following the groundwork laid by Pensions Minister Guy Opperman and the Productive Finance Working Group – LTAFs offer defined contribution pension schemes and other asset owners an open-ended vehicle for investment in illiquid assets across venture capital, private equity and credit, real assets and infrastructure. The idea is to radically extend access to investments that can outperform on returns and impact.
Similarly, in Europe, the increased flexibility introduced in 2023 makes ELTIFs the ideal vehicle for investments across private markets asset classes aligned with the EU Green Deal and Clean Industrial Deal.
With many aligned closely with Europe’s green finance frameworks – such as the Sustainable Finance Disclosure Regulation – ELTIFs typically direct investment to the renewable energy, green innovation and the circular economy sectors, whether via SMEs, green bonds or infrastructure investments.
But in both markets, potential investors are asking similar questions around how providers balance liquidity considerations with delivering superior returns over the long term, while also securing the asset mix to meet sustainable investment objectives, and to perform over the fund’s growth and consolidation phases.
The markets are at different stages of development with ELTIFs numbering over 200 – the vast majority operating under the ELTIF 2.0 regime. In the UK, the regulatory framework was only finalised by the Financial Conduct Authority in 2023, permitting retail investment. While demand for the 30 funds launched to date is yet to take off, the need for private investment in key strategic and sustainable industries should guarantee growth for years to come.
As part of Sustainable Investor’s Q1 2026 private markets focus, we’ve invited market experts to share their views on the key selection criteria LTAFs and ELTIFs must satisfy.
Q1: What aspects of the LTAF and ELTIF 2.0 frameworks offer the most scope to develop innovative products that support asset owners’ sustainable investment objectives?
Laasya Shekaran, Director, Community, Pensions for Purpose:
“The main value of LTAFs and ELTIF 2.0 lies in their explicit focus on long-term capital, which could lend itself well to innovation. That said, the case for these structures is not uniform across the market. As the UK’s defined contribution pension sector consolidates and larger schemes develop greater internal capability, some may be able to access private markets through other routes. LTAFs and ELTIFs may therefore be most valuable where they enable access to smaller, earlier-stage or more specialised opportunities that might otherwise be unavailable.”
Tim Boole, Head of Product, Schroders Capital:
“New fund structures allow a broader set of investors to access investments such as direct holdings in energy transition-related infrastructure, offering the potential for higher returns, portfolio diversification, and material benefits for the environment and society, as well as energy security.
“The LTAF has been designed to deliver on the key characteristics that investors seeking exposure to energy transition infrastructure may require, including a degree of flexibility around liquidity to help overcome some of the traditional hurdles to investing in these assets.
“Ultimately, the major benefit of an LTAF structure is the ability to access high quality and differentiating assets in an appropriate format. In the case of energy transition infrastructure, investors can benefit from its risk and return characteristics, which can contribute to better portfolio outcomes, and access the attractive entry point on offer today.”
David Zackenfels, Senior Vice President – Legal, Association of the Luxembourg Fund Industry (ALFI):
“Under the revised ELTIF Regulation (ELTIF 2.0), the greatest scope for developing innovative products stems from an expanded range of eligible real assets, enhanced flexibility in portfolio composition, and the ability to use a wider range of structuring tools to support both institutional and retail investors’ sustainable investment strategies.
“First, ELTIF 2.0 broadens the definition of eligible real assets to explicitly include environmental, social, and energy-related infrastructure. This enables ELTIFs to invest directly in assets linked to sustainability-related themes, such as renewable energy, social infrastructure, or energy efficiency projects.
“Second, the regulation introduces enhanced portfolio flexibility by reducing the minimum allocation to illiquid long-term assets from 70% to 55%, while allowing up to 45% to be invested in liquid assets. This facilitates the development of semi-liquid ELTIF structures that can combine long-term private market investments with liquid instruments, including those incorporating sustainability-related criteria.
“In addition, ELTIF 2.0 explicitly permits investments in European green bonds aligned with the EU Green Bond Standard, and in Simple, Transparent, and Standardised (STS) securitisations, allowing managers to build bespoke alternative portfolios.
“The expanded framework allows for ‘master-feeder’ structures and increased use of fund-of-funds. This enables managers to design more tailored and diversified ELTIF strategies, including those focused on specific UN Sustainable Development Goals or ESG-aligned strategies.
“Finally, the European Commission is assessing whether an optional designation of ‘ELTIF marketed as environmentally sustainable’ or ‘green ELTIF’ is feasible. Such a designation could provide a clearer pathway for products explicitly marketed as environmentally sustainable, enhancing credibility, comparability, and investor confidence in sustainable long-term investment solutions.”
Q2: What are the pros and cons for investors arising from liquidity tools available to LTAFs and ELTIFs to enable flexibility on redemptions? How should providers balancing cost, performance and liquidity?
Toby Seely, Associate Director, Private Markets, WTW:
“Liquidity management requires maintaining a cash or liquid asset buffer to meet redemption terms, which can create a performance-volatility trade-off: holding cash may lead to drag on returns, while equity could increase exposure to market volatility. Providers must carefully align inflows with deployment into suitable investments, as leaving investors in cash for extended periods undermines the value proposition of accessing long-term illiquid assets.
“Effective oversight of illiquid versus liquid exposures is critical, demanding experienced management of open-ended structures and clear investor education. Despite enhanced liquidity features, these vehicles remain designed for long-term investment horizons.”
Jo Sharples, Partner and Chief Investment Officer, Aon DC Solutions:
“When thinking about liquidity within the default strategy, most DC schemes are cash flow positive and will be for some time. Any payments out, for example, to pay benefits or meet transfers, are more than offset by positive net contributions. Because the vast majority of members invest in the default strategy, schemes are able to take a very long–term view. Typically an allocation to private markets will sit within a bigger pool of liquid assets, which can be used for immediate liquidity, reducing the need to rely on the private markets allocation for this purpose.
“There may be times when schemes might need to redeem, for example to rebalance between the liquid assets and private markets. This is where the structure of the individual LTAF is important, as is the nature of the other investors.
“A combination of some liquid assets, semi-liquid underlying funds that can be redeemed with notice, or assets that provide natural liquidity such as private credit or infrastructure are all valuable tools to help provide sufficient liquidity. It’s really important for an asset owner to understand who else they will be investing alongside. Some LTAFs are designed more for individual investors, who will tend to hold more liquid assets and less in private markets. Investors will need to balance the desire for private markets exposure with the need for liquidity.”
David Zackenfels, ALFI:
“ELTIFs provide investors with access to illiquid investments, which were historically limited to professional investors, via open-ended structures. This access needs to be managed carefully, and each asset manager determines the approach that works best, depending on the type of investor, the nature of the underlying assets, and the investment horizon. There is no one-size-fits-all solution.
“Liquidity management tools are designed to protect investors against ‘fire sales’ and to treat all investors as fairly as possible. Unlike UCITS, which are redeemable daily, ELTIFs typically offer periodic redemptions – often monthly or quarterly – paired with lock-in or notice periods. These tools need to be used alongside the fund’s portfolio and redemption policies to balance liquidity with performance.
“Ultimately, asset managers must generate returns from predominantly illiquid strategies while managing investor flows. This requires careful calibration between cost, performance, and liquidity to ensure that redemptions do not compromise the fund’s long-term investment objectives.”
Q3: How should asset owners weigh up LTAFs and ELTIFs against other long-term private markets channels?
Shiwen Gao, Real Assets Portfolio Manager, Fulcrum Asset Management:
“The choice between LTAFs and other private market channels should be guided by an asset owner’s governance capacity, scale, liquidity requirements, and investment and sustainability objectives. Strategy design, breadth of opportunity set, platform accessibility, and terms & conditions should all be considered.
“LTAFs are distinctive in offering structured, periodic dealing and valuation — typically monthly/quarterly. This can be particularly valuable for asset owners managing evolving liability profiles or rebalancing needs, in contrast to many traditional private market vehicles that have unclear drawdown and distribution profiles. Open-ended LTAF models remove the cash flow management burden from investors completely. They also reduce the need for and cost of continual commitments to new vintages and funds over time, thereby significantly reducing governance burden.
“Beyond liquidity, LTAFs have also broadened access to private markets. As [leading business academic] Clayton Christensen observed, “Disruptive innovation allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.” LTAFs have expanded the opportunity set for smaller and mid-sized asset owners that previously struggled to meet minimum investment sizes or governance requirements associated with private market strategies. This has enabled a wider range of investors to support innovation and growth in the private sector, where long-term capital can play a meaningful role.
“The second-order effects of running a traditional private markets portfolio – such as holding a higher cash balance to meet capital calls, the ability to invest distributions quickly and effectively, and what these are invested in – should be taken into close account. Take a portfolio with 20% allocated to a sleeve of traditional private market funds. If, to facilitate this portfolio, the investor increases their cash balance by 2% to fund any liabilities, the dilution to returns of that sleeve will be nearly 10% when compared to a well-managed LTAF/ELTIF.”
Tim Boole, Schroders Capital:
“While investment trusts continue to serve UK investors very well, LTAFs are particularly well-suited where an end-investor has a long-term time horizon.
“A notable difference is how vehicles are brought to the market. Launching an investment trust can involve significant costs, such as those associated with IPO, reducing day one NAVs for founder investors. LTAF launches are typically lower cost to investors and are able to be scaled over time, offering less ‘blind pool risk’ than in a traditional private fund or investment trust at launch.
“The trade-off here is the certainty of liquidity. LTAFs are structured to align redemption terms to the underlying ‘natural liquidity’ of the portfolio assets, among several other built in liquidity measures. This is a key difference from open-ended structures. At scale and in normal market conditions they should still provide reasonable liquidity – 5% of NAV per quarter could be expected.
“In the EU, the ELTIF is the main fund vehicle for investors to access private markets, as access was either restricted to professional investors or often in cases of real estate it was structured in local fund wrappers.”
Q4: Are LTAFs and ELTIFs an effective channel for smaller asset owners to invest in private markets assets for longer investment horizons?
Jo Sharples, Aon DC Solutions:
“For smaller asset owners, an LTAF provides a scalable and practical means to allow access to private markets. They can invest alongside other investors and benefit from the broader scale to access opportunities that might not otherwise be available.
“That said, an asset owner may not be able to access assets that exactly align with their own objectives. Careful due diligence upfront will be key to ensure that the asset owner understands the investment strategy, types of assets that will be held, and how sustainability is integrated within the investment process.”
Philippe Faget, Head of Private Assets, VEGA Investment Solutions (part of Natixis IM):
“ELTIFs are effective channels for smaller asset owners because they make private assets (including private debt, infrastructure, real estate and private equity) accessible through a single diversified fund. Providers address investor concerns by offering clear explanations of risks such as long investment horizons, lock‑up periods and liquidity constraints, and by relying on experienced distributors and robust liquidity management processes to ensure smooth subscription and redemption experiences.”
Tim Boole, Schroders Capital:
“Key changes under ELTIF 2.0 include the removal of regulatory-defined minimum investment amounts, simplified investor onboarding processes, enhanced structuring flexibility, and the introduction of liquidity management frameworks. Collectively, these changes make the ELTIF a much more practical and relevant vehicle for asset owners seeking exposure to private markets.
“These structures have much lower investment minimums, and they allow investors to buy in at regular intervals – monthly or quarterly – and typically into existing portfolios, providing immediate exposure rather than staged capital commitments. They also incorporate controlled, periodic liquidity mechanisms, most often on a quarterly basis.
“While LTAFs and ELTIFs remain long-term investments, these structures offer greater accessibility and usability to a wider range of asset owners.”
Q5: How can asset owners ensure that LTAF and ELTIF providers align with their investment priorities around impact and sustainability?
Laasya Shekaran, Pensions for Purpose:
“Asset owners should investigate how sustainability and impact are embedded in practice as part of the investment strategy.
“This includes how investment decisions are made, how stewardship is exercised over time and how trade-offs between financial returns and wider outcomes are handled. Governance, incentives and escalation processes are often more informative than high-level policy statements.
“We increasingly see asset owners favouring ongoing engagement with managers, rather than treating alignment as something assessed only at the point of selection. This is particularly important for long-term vehicles, where beliefs and expectations need to remain aligned over many years.”
Shiwen Gao, Fulcrum Asset Management:
“Asset owners should look for evidence of sustainability alignment in practice, not rely solely on the provider’s sustainability policy statements. Case studies can show how sustainability considerations have influenced real investment decisions and outcomes.
“How an LTAF investment process integrates sustainability is also a core consideration — including within the asset allocation process, manager or asset selection, portfolio construction and exit decisions. Integration is often most effective when responsibility for delivering sustainability objectives sits within the investment team itself. This may include a dedicated sustainability lead, but alignment is strongest when sustainability is embedded in investment decision-making rather than delegated to a separate function.
“Mandate design, governance structures and team incentives should reinforce alignment. Asset owners should assess whether senior leadership and portfolio managers are incentivised to deliver sustainable outcomes alongside financial returns. Where LTAFs invest through third-party managers, sustainability objectives should be embedded through clearly defined investment agreements, supported by ongoing monitoring and the ability to intervene where alignment weakens.
“The degree of scrutiny required will depend on how central sustainability is to trustees’ and boards’ investment beliefs. For those placing sustainability at the forefront of private market portfolios, it is important to ‘look under the hood’ and assess whether sustainability genuinely shapes capital allocation, or is primarily used as a risk mitigation or exclusion tool.
“To preserve breadth of opportunity, decision-making should sit with the LTAF provider, which has visibility across multiple asset classes, sectors and deal flows. A robust investment process should include the ability to veto investments that do not meet sustainability criteria, while remaining nimble and adaptable as ESG priorities evolve — the defence sector being a current example of how sustainability considerations can change over time.
“Finally, while private market capital is often directed towards larger transactions, asset owners should not overlook smaller and under-owned opportunities, where funding gaps can be acute but local impact considerable. Accessing these opportunities requires a forward-thinking and innovative LTAF provider willing to consider smaller, growth-oriented investments that can deliver meaningful long-term outcomes.”
Philippe Faget, VEGA Investment Solutions:
“To ensure alignment with their investment beliefs, asset owners should choose ELTIF providers who demonstrate strong expertise in navigating long‑term business and market cycles and who understand the major structural transitions shaping economies. Managers who allocate dynamically across infrastructure, real estate, private debt and private equity are better positioned to build portfolios that reflect long‑term priorities such as resilience, demographic change, and economic transformation.”
Q6: What is the most effective asset mix to deliver value creation over the long term?
Jo Sharples, Aon DC Solutions:
“It depends! For DC schemes, we believe that private assets have a valuable role to play in delivering returns and hence better outcomes to members. But different assets have different roles to play at different stages of the member journey.
“For younger members, the focus should be on long-term growth, favouring allocations to private equity, infrastructure, real estate, and higher returning areas of the private credit market. For members closer to retirement, there is a need to provide smoother returns and more liquidity (noting members are likely to want to start taking their benefits once they reach retirement). This leads to investing in private credit and insurance-linked securities. The regular income and relatively low maturity of many private credit instruments provide natural liquidity and help manage liquidity risk for members as they get older.
“Selecting the right assets is key to delivering returns and outcomes to members. This requires specialist expertise including third-party specialists who have the necessary skills, resources and experience.
Toby Seely, WTW:
“The optimal asset mix within an LTAF or ELTIF is highly dependent on the end-investor’s objectives, risk appetite, and broader portfolio positioning. For investors seeking higher return potential and willing to accept illiquidity, private equity often sits at the top of the risk-return spectrum and can be suitable across multiple phases of the investment lifecycle, not just growth, but also consolidation, given the semi-liquid implementation these vehicles offer. Conversely, investors with more conservative risk profiles or later-stage capital needs may prefer strategies focused on income and stability, such as real assets, infrastructure, or real estate. Usually, vehicles will also contain a liquidity sleeve made up of listed equities or cash in order to meet redemption requirements.
“The role of third parties should be clearly defined. LTAF/ELTIF providers’ expertise in structuring and managing diversified portfolios, alongside scale advantages, can add significant value, unlocking access to high-quality private market opportunities and delivering operational efficiency that individual investors may struggle to achieve alone.
“Meanwhile, advisors or delegated investment managers can enhance governance, provide robust due diligence, and ensure alignment with an investor’s sustainability and risk objectives. While these services may introduce additional layers of complexity and cost, they can provide meaningful advantages in terms of oversight, customisation, and long-term value creation, making them an important consideration for investors seeking robust solutions. Clarity on responsibilities and alignment with investor priorities is essential to ensure efficiency and avoid unnecessary expense.”
David Zackenfels, ALFI:
“While ALFI does not offer views on which asset mix is most effective for delivering long-term value, we observe that expertise and specialisation have led to the creation of many bespoke ELTIFs. The total assets under management in ELTIFs remain modest (around €30 billion), but the number of ELTIFs has grown significantly from 50 before ELTIF 2.0 to over 275 today, with approximately 60% domiciled in Luxembourg. This reflects a broad variety of fund strategies and structures.
“A key driver for investor interest in ELTIFs has been tax incentives. For example, in countries such as Italy, investors benefit from relief when funds are invested in Italian companies, including SMEs, subject to specific local regulatory requirements.”
Q7: How should LTAF and ELTIFs providers manage the fair allocation and distribution of assets and their returns across investors over time?
Laasya Shekaran, Pensions for Purpose:
“Fairness between investors is critical to the credibility of these structures.
“Providers need robust valuation methodologies, clear policies on asset allocation across vintages and strong independent governance. This becomes increasingly important where funds are open to new capital over extended periods.
“Transparency is key. Asset owners are more likely to be comfortable with complexity where they can see that decisions are principled, consistently applied and focused on long-term value creation rather than short-term smoothing.”
Jo Sharples, Aon DC Solutions:
“This is where the valuation of the underlying assets is really important, as well as oversight of that valuation. Asset owners need to ensure that the providers of the LTAF have the necessary skills and experience to do this well.
“The other consideration is around subscriptions and redemptions into the fund. With any investment into private markets there is necessarily a delay when either investing or disinvesting – money may need to be provided in advance of gaining exposure or there is likely to be a delay in receiving cash. Understanding the timing around cash flow and implications at the member level is really important.”
Toby Seely, WTW:
“Allocation and distribution mechanisms depend heavily on the underlying asset class and the structure of the vehicle. We run a solution where investors purchase units in an actively managed portfolio, giving them proportional exposure to all current holdings rather than specific deal vintages.
“Performance fee attribution should be carefully designed so that only investors who benefit from the performance of particular assets bear those fees, a dynamic not uniformly applied across fee arrangements in evergreen vehicles.
“Additional considerations include the treatment of hurdles and performance fee catch-ups, which must be structured to ensure fairness and transparency across different investor entry points and time horizons.
“The role of valuation policies is also essential within these vehicles, which typically invest in infrequently-priced assets. Fair allocation of profits relies on transparent pricing mechanisms, consistency in valuation periods, and oversight in the form of some independence in valuation.”
Philippe Faget, VEGA Investment Solutions:
“The business cycle should be at the heart of the manager’s allocation philosophy to capture illiquidity premiums and diversification benefits. There is a sensitivity of private assets to the business cycle. Illiquidity provides a premium and depends on the entry point, at which phase of the business cycle we are, and hence, the vintage year. Depending on the macroeconomic perspectives, views are generated on the different private asset classes and their sub-strategies. They are analysed and debated through regular private asset investment committees that determine private asset allocation convictions. These convictions are then implemented in the portfolio by selecting the best funds per private asset class while considering the vehicle’s risk/return profile, ESG dimension, and liquidity requirements.”
