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).

2019
2020
2021
2022
2023
2024
4
1
Implementation / enforcement 01/2013 - 06/2013
2
Discussion / consultation 06/2013 - 05/2015
3
Implementation / enforcement 05/2015 - 12/2015
4
In effect 12/2015 -

STATUS
The European Commission adopted the draft RTS setting out proposed Level 2 measures. The draft Delegated Regulation will be reviewed by the European Parliament and by the Council of the EU.

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.

Further information:
European long-term investment funds (ELTIFs)

author
Ivo Habets Senior Manager
Categories: Financial Market Organisation