The recent criticism of ELTIFs raised by the German consumer association (Verbraucherzentrale) is fundamentally justified, it addresses real risks arising from illiquidity, complexity, and long investment horizons. EUROCROWD supports the criticism, but it needs to be acknowledged that ELTIF 2.0 is not an invitation to deregulation, but rather an attempt by large financial institutions and policy makers to open private markets under a controlled and regulated framework with stringent requirements on structure, valuation, and disclosure. It is the paramount vision behind the Europeans Commission’s Savings and Investment Union.
The key question is not whether ELTIFs are suitable for retail investors, but for whom and under what conditions. And clearly, they are not a mass-markt product.
For sure, MiFID-based suitability tests, clearly defined redemption policies, and full cost transparency are not mere formalities, they have been designed as decisive levers that determine the level of investor protection in practice. Where these processes are implemented diligently, ELTIFs can serve as a meaningful component for long-term oriented retail investors, especially those who wish to finance real economic activity. But long-term should also be understood as long-term.
Lets be clear, structural tensions remains:
- Information asymmetries persist despite disclosure, as valuations of illiquid assets are always model-based.
- Distribution via tied agents adds complexity to the accountability chain and increases the risk of mis-selling if supervision and training are inconsistent.
- Return expectations are often communicated too optimistically, while liquidity risks tend to be underestimated.
In comparison, the European Crowdfunding Regulation (ECSPR) offers retail investors a more transparent and proportionate alternative. Here, transparency and investor comprehension are central: standardized information sheets, risk warnings, investment thresholds, and direct platform supervision. Projects are typically smaller, more tangible, and directly linked to individual enterprises or ventures. ECSPR does not replace diversified fund products, but for many retail investors it is more understandable, manageable, and aligned with their financial risk capacity. Still in the context of the German market ECSPR remains marginal.
As the criticism was issued by the German consumer association, we also need to consider a still widely offered gray capital market tool for retail investors, subordinated loans under the German Vermögensanlagengesetz (VermAnlG). Despite prospectus and disclosure requirements, these continue to carry above-average insolvency and total loss risks. Their subordinated nature means that investors rank behind all senior creditors in case of default. Experience in the grey capital market has shown that this structure is particularly prone to misunderstanding and miscommunication (we have reported about this and the legal challengeds of German crowdfunding market repeatedly), one reason why some German “crowdfunding” providers have migrated toward more regulatory frameworks such as tied agents under MiFID to issue retial investemnts, either directly or via ELTIF.
The fact that some crowdfunding platforms in Gemany have been shifting from subordinated loans under KASG/VermAnlG toward a tied-agent MiFID licence reflects not so much innovation, but a search for a viable distribution framework under minimal regulatory cost. From a business and cost perspective, that might be understandable, yet for investors and regulators, it underlines the need to critically assess product quality, governance, and distribution competence before granting trust.
ELTIFs are not a silver bullet for retail participation in capital markets. They can be a solid instrument, provided they are well structured, transparently valued, and responsibly distributed. But they are clearly less transparent and suitable for the majority of retail investors as their supplyers would like us to believe.
For investors seeking professional alternatives, the ECSPR framework offers a clearer and more proportionate retail entry point. The lack of German platforms does not need to be a problem, as both German businesses and retail investors can make use of professional crowdfunding service providers in other EU markets. Those continuing to rely on subordinated loans should fully understand their economic ranking and the inherent loss risks, while retail investors in ELTIFs must adjust for strong information assymmetries, complexity in accountability and significant liquidity risks.
Ultimately, it is not regulation alone that ensures trust, but the credibility of its implementation in product design, distribution, and investor communication alike. And here, ECSPR licensed actors have, if they play it right, the upper hand.
