On 5 December 2025, Esma published a series of Q&As on Eltifs, incorporating interpretative guidance from the European Commission (“EC”). The Q&As provide important clarifications on the operation of the revised Eltif regime, including in relation to Eltif fund-of-funds (“FoF”) structures.
In particular, the Q&As address whether investments in non-EU AIFs may qualify as eligible investments for Eltif purposes given the limitation in Article 10(1)(d) to EU-domiciled funds. In addition, the EC clarifies whether, where an Eltif invests in other Eltifs, EuVECAs, EuSEFs, Ucits and/or EU AIFs (together, “Target Funds”) managed by EU AIFMs, those Target Funds must themselves exclusively invest in assets that qualify as eligible investments under the Eltif framework. Given its practical relevance for Eltif structuring, this article examines the EC’s position and its implications for Eltif managers and product structuring going forward.
Target funds under Eltif 2.0
Eltif 2.0 entered into force on 10 January 2024 and introduced FoF investment strategies as a structuring option for Eltifs. From a practical perspective, FoF structures allow Eltif managers to deploy capital more efficiently, reduce cash drag and achieve diversification more quickly, particularly where underlying investments have different deployment and maturity profiles. The EU legislator expressly recognized FoF strategies as a common and efficient way of gaining exposure to illiquid assets, especially in fully paid-in capital structures, making them well suited for Eltifs.
From a practitioner’s perspective, the EC’s clarification significantly improves structuring flexibility for Eltif managers.
At the same time, Eltifs remain subject to strict investment eligibility requirements.
Against this background, uncertainty persisted for a considerable period as to how these requirements should be applied in the context of Eltif FoFs. In particular, it was unclear whether an Eltif investing in “eligible investment funds” pursuant to Article 10(1)(d) of the Eltif Regulation would remain compliant only if the underlying portfolios of those target funds themselves consisted exclusively of Eltif eligible investment assets. After all, Target Funds qualify as “eligible investment assets” for Eltif purposes if they are Eltifs, EuVECAs, EuSEFs, Ucits or EU AIFs managed by an authorized EU AIFM. In turn, such Target Funds are subject to their own investment rules, including the requirement that they must not invest more than 10 percent of their assets in other collective investment undertakings.
In parallel, uncertainty existed as to whether Eltifs could obtain any exposure to non-EU AIFs at all. Article 10(1)(d) of the Eltif Regulation refers exclusively to EU-domiciled funds as eligible fund investments, raising the question whether investments in non-EU AIFs could nonetheless qualify as eligible investments under Article 9 of the Regulation, or whether such exposure was categorically excluded from the Eltif eligibility framework.
The EC has now sought to address these questions through its Q&A.
Limited ‘look-through’ for Target Funds under Eltif 2.0
The EC confirmed that, where an Eltif invests in Target Funds, those Target Funds must, in principle, invest in eligible investment assets within the meaning of the Eltif framework. However, the EC draws a clear and practical distinction between eligibility requirements, on the one hand, and portfolio composition, diversification and borrowing limits, on the other.
In particular, the EC clarified that Eltif managers are only required to apply a “lookthrough” to Target Funds for the purposes of assessing compliance with portfolio composition, diversification and borrowing limits. No full lookthrough is required for eligibility purposes in order to verify whether the underlying assets held by the Target Fund would themselves qualify as Eltif-eligible investment assets. As a result, an Eltif may invest in a Target Fund even where that Target Fund holds assets that the Eltif could not acquire directly.
In practical terms, this means that an Eltif may obtain exposure, via a Target Fund, to asset classes that would fall outside the Eltif eligibility criteria if held directly, provided that the Eltif continues to comply, on an overall basis, with the applicable diversification and leverage limits, taking such indirect exposures into account.
While this approach may appear counterintuitive at first glance, it reflects a pragmatic compromise.
While this approach may appear counterintuitive at first glance, it reflects a pragmatic compromise. In practice, Target Funds will still be required to predominantly invest in eligible investment assets. A strict full lookthrough would, however, exclude a significant number of otherwise suitable Target Funds and would impose substantial duediligence and ongoing monitoring burdens on Eltif managers. Conversely, the absence of any lookthrough would risk circumvention of portfolio composition, diversification and borrowing limits by shifting concentrations into underlying funds. The EC’s “limited lookthrough” therefore strikes a balance between regulatory safeguards and operational feasibility.
Investments in non-EU AIFs under Eltif 2.0
The EC’s Q&A confirms that non-EU AIFs cannot be treated as eligible investment assets and may only be invested in directly where they qualify as Ucits-eligible investments. Direct investments by Eltifs in non-EU AIFs therefore remain excluded.
The Q&A does, however, confirm that Eltifs may obtain indirect exposure to nonEU AIFs where such exposure arises through eligible investment assets, such as Target Funds, provided that the Eltif continues to meet its minimum requirement to invest at least 55 percent of its capital in eligible investment assets.
Implications for Eltif managers
From a practitioner’s perspective, the EC’s clarification significantly improves structuring flexibility for Eltif managers. By confirming that no full eligibility lookthrough to the underlying assets of Target Funds is required, the EC reduces due diligence complexity and ongoing monitoring burdens for Eltif managers, while maintaining regulatory safeguards through a limited lookthrough for diversification and leverage limits. This clarification supports the practical use of FoF strategies under Eltif 2.0, within clear boundaries for indirect exposure to non-EU AIFs.
Sebastiaan Hooghiemstra is a senior associate in the investment management practice group of Loyens & Loeff Luxembourg. Gabriël Storm is an associate in the investment management practice group of Loyens & Loeff Netherlands. The law firm is a knowledge partner of Investment Officer.
