Key trends in European semi-liquid funds

This year has brought further momentum in the use of ‘semi-liquid’ funds to meet appetite for private markets exposure. The LTAF and ELTIF 2.0 fund frameworks are being increasingly used by asset managers to try lower barriers to access for European investors and Rachel Thornton, Senior Product Manager, Complex Fund Solutions at Northern Trust outlines three key trends from 2025 so far in their use.

Semi-liquid funds are structures providing a hybrid asset mix of public and private asset investments, offering redemption facilities through open-ended fund or limited liquidity vehicles. Driven by investor appetite for gaining access to private markets investing with a measure of liquidity – unlike more established closed-ended vehicles – launches of these funds have continued at pace in 2025.

I enjoyed speaking on this topic at this year’s IMpower FundForum conference as part of a panel discussion focused on the growing interest from investment managers in using the still-relatively new UK Long Term Asset Fund (LTAF) and European Long Term Investment Fund 2.0 (ELTIF) frameworks to distribute markets investment strategies including private equity, private credit, infrastructure, and real estate.

Against that backdrop, here are three key developments we observe in our role as asset servicing provider to investment managers.

LTAF distribution strategies are evolving rapidly

Semi-liquid funds have increasingly become viewed a vehicle for capital formation and long-term investment in sustainable infrastructure, aligning with public policy goals. In the UK, the 2023 Mansion House Reforms set a target for large defined contribution (DC) pension providers to allocate 5% of default fund assets to unlisted equities by 2030.

This policy continues to drive fund launches, now further supported by government’s commitment to binding asset allocation targets, likely favoring private markets. These reforms are part of a broader effort to stimulate economic growth and diversify pension portfolios beyond traditional public market instruments.

As a result, LTAF launches have accelerated more quickly than ELTIF 2.0 counterparts. Of the 25 LTAF sub-funds launched to date (as of September 2025 | source: FCA website), most have come from large asset managers responding to growing institutional and DC investor interest. The LTAF structure is increasingly viewed as a cornerstone for long-term investment strategies in the UK.

Notably, interest is also emerging in LTAFs tailored to high-net-worth (HNW) individuals, positioning the LTAF as a versatile tool for both institutional and HNW distribution strategies.

A further milestone in their use also came this summer with the announcement that LTAFs will be eligible for inclusion in Stocks & Shares ISAs from 2026 under the Government’s Leeds Reforms. This move is aimed at unlocking new investor demand, broadening the country’s investor base, and helping drive a long-term retail investment culture that includes broader access to private markets.

Cross-border distribution will be key to unlocking ELTIF potential

ELTIFs, which can be structured for both professional and HNW retail investors, for which we are seeing a distribution bias toward European private banking channels. This underscores the importance of robust distribution capabilities targeting sophisticated investor segments and highlights the need for tailored marketing and education strategies.

The ELTIF 2.0 regulations took effect in January 2024, with technical standards implemented later that October. With 55 ELTIFs approved (source: ESMA ELTIF register, 25 August 2025) so far in 2025, they offer promising avenues for expanding private markets access across Europe. The updated framework addresses many of the limitations of the original ELTIF 1.0, making it more attractive to managers and investors alike.

Enhancements include reduced minimum exposure to illiquid assets (from 70% to 55%) and the introduction of 'evergreen' ELTIFs – open-ended structures allowing limited inflows and outflows. These features provide greater flexibility in fund design and make ELTIFs more suitable for a wider range of investment strategies.

At Northern Trust, we view the ELTIF label as a significant innovation in progressing towards the democratization of private assets within the European Union (EU)’s Alternative Investment Fund (AIF) framework. The ELTIF label was designed to be to AIFs what the UCITS label was to listed funds: for ELTIFs to act as a facilitator and accelerator for the pan-European distribution of ‘alternative’ funds across the bloc regardless of where in the EU they are domiciled.

Distribution remains both a challenge and an opportunity. Our experience of supporting managers with fund launches is that they will need to invest in distributor education and build relationships with platforms capable of supporting cross-border fund flows. Having experienced partners for their funds with deep knowledge of client profiles, regulatory environments, and operational requirements will also help.

Operating model challenges: fund design takes time

In our panel discussion we discussed how no two semi-liquid funds are the same and that consequently their operating model requirements can vary significantly. Despite growing familiarity with LTAFs and ELTIFs, fund design remains resource intensive. Regulatory approval generally requires detailed thorough upfront analysis, including liquidity management tools, pricing policies, and comprehensive operating model documentation.

Applying the correct fund and domicile regulations adds another potential layer of complexity, particularly for managers entering unfamiliar markets. Legal and compliance teams must work closely with product development to ensure adherence to local and EU-wide rules, which may differ significantly across jurisdictions.

Technology and fund infrastructure also play critical roles. Managers should ensure that their systems can support the requirements periodic liquidity windows, complex valuation methodologies, and investor reporting obligations.

The emerging access vehicles for private markets

At Northern Trust we are seeing ELTIFs and LTAFs used for a mix of hybrid European semi-liquid strategies emerging, with a consistent focus on private credit currently.

Demand for private markets investing is of course not new: institutional and HNW investors have for years leveraged private asset classes for portfolio diversification. Despite the challenges in fund design and distribution, use of the ELTIF and LTAF vehicles continues to gain traction - potentially expanding investor access to a broader, more complex array of private market investment opportunities in the coming years.

While they remain at an early stage of take-up compared to more established counterparts, these vehicles are now positioned as the UK Government and European Union’s regulated structures of choice for driving broader participation in private markets – purpose-built to gain exposure to more illiquid assets via a single, multi-asset fund vehicle.

For more information and ideas on solutions emerging to support European semi-liquid funds visit: northerntrust.com/europeansemi-liquids