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Are ELTIFs Worth the Complexity? Our Researchers Weigh In
The big ELTIF unknowns: Insights from Morningstar’s research team
The European long-term investment fund, or ELTIF, market has seen a massive influx of new product launches following the ELTIF 2.0 regulatory changes. As asset managers expand their offerings into evergreen funds and private credit, financial advisors face the challenge of evaluating these semi-liquid vehicles for their clients.
In Morningstar’s recent webinar, The State of ELTIFs 2026: Looking Beyond the Hype, Evangelia Gkeka sat down with manager research analysts Mara Dobrescu, Shannon Kirwin, and Francesco Paganelli to tackle the questions advisors are asking today.
Q: Will Morningstar assign Medalist Ratings to ELTIF strategies without a three-year track record?
A: A strict three-year track record isn’t a hard requirement to assign a rating. What matters more is whether Morningstar can clearly assess the investment merit based on the manager's history. If a firm has already run a similar strategy in another structure—such as a UCITS Part II fund—that history carries weight.
As Dobrescu put it, "If a fund company that already has a track record of investing with that strategy, maybe on another vehicle...that's more likely to give us confidence than a fund that's just starting out where there is no evidence at all of the team having executed a similar process before."Q: Do ELTIF returns actually stack up against public market ETFs?
A: They can, but only if the math works. ELTIFs require strict due diligence, as costs are materially higher than passive ETFs. While private assets can expand an advisor's opportunity set, investors must ensure the illiquidity premium is large enough to compensate for the higher fees and complex fund structure.
Success hinges on patience and selecting the right manager. Paganelli summed it up well: "It's a complex space to navigate, but there are good opportunities in this space."
Q: Are European investors pulling back from private credit ELTIFs?
A: Right now, we don’t expect a mass exodus from European private credit. Unlike the US, European private credit didn’t experience the same surge of inflows into software lending during the low‑rate years, which is currently driving some US redemption requests amid higher borrowing rates.
The European market also benefits from stronger covenants and capital protections, on average. As Kirwin noted, "the loan and the private lending markets in Europe tend to have slightly higher standards than the US private lending market, so there are, generally speaking, going to be slightly stronger covenants and capital protection in place."
Q: What are the main barriers to growth for the European ELTIF market?
A: There are several roadblocks:
- Education gaps: These products are complicated, and many investors still don’t fully understand how liquidity, fees, or benchmarks work.
- High and opaque costs: Comparing all‑in fees across ELTIFs isn’t easy, and transparency varies widely.
- Fragmented distribution: Bank‑ and advisor‑led distribution remains dominant across European markets, slowing adoption.
- Product design uncertainty: There’s no clear consensus yet on which structures strike the best balance between liquidity and returns.
Despite those hurdles, Paganelli sees momentum building, stating, "we do see private and public markets converging, pretty much across the world. So we think in due time, we'll definitely see wider adoption."
The Bottom Line for Advisors
This market offers compelling opportunities in private credit, infrastructure, and other private assets, but it demands careful manager selection and a long-term mindset.
Ultimately, success comes down to three things:
- Patience, given long time horizons and potential gating.
- Premium, ensuring returns truly compensate for illiquidity and complexity.
- Proficiency, because manager selection matters more here than almost anywhere else.
Cutting through the hype means focusing less on headline returns and more on structure, costs, liquidity mechanics, and stewardship. Advisors who do that will be far better positioned to decide whether, and when, ELTIFs make sense for their clients.
