European Long-Term Investment Fund Regulation (ELTIF)
The European Long-Term Investment Fund (ELTIF) regulation has been introduced by the European Commission (EC) to encourage long-term investments to finance initiatives, such as real estate, unlisted companies and listed SMEs. ELTIFs will operate within the Alternative Investment Fund Managers (AIFM) regime as a new category of closed-ended funds.
To benefit from the cross-border passport, the AIF aiming to market themselves as ELTIF, has to invest 70% in clearly defined eligible assets and thereby, a maximum of 30% in other assets (e.g. UCITS). The fund is also subjected to investment restrictions (e.g. short selling), diversification and concentration requirements (e.g. no more than 10% of its capital in units or shares of any single ELTIF, EuVECA or EuSEF).
1Implementation / enforcement 01/2013 - 06/2013
2Discussion / consultation 06/2013 - 05/2015
3Implementation / enforcement 05/2015 - 12/2015
4In effect 12/2015 -
A key difference between ELTIF and the AIFMD passport is that the former can also be marketed to retail investors. When directly offering units or shares of an ELTIF to a retail investor, the manager of the ELTIF would be required to perform a MiFID-like suitability test and obtain information regarding the knowledge and experience, financial situation and investment objectives of the potential investor. In addition, a PRIIPs Key information Document (KID) would be required.
Whether ELTIFs will actually be successful remains to be seen. The strict ban on the redemption of invested funds prior to the end of their lives does reduce the risks involved in lending by ELTIFs, and also makes them less attractive to short-term investors. ELTIFs are particularly attractive to pension funds and large insurance companies, which have long-term liabilities and are interested in long-term returns.
European long-term investment funds (ELTIFs)