The revamped European Long-Term Investment Fund (Eltif) “is important in many ways but above all, it signals the European Commission’s and the EU legislator’s willingness to pursue a key milestone towards the capital markets union.” So said Federico Cupelli, deputy director for regulatory policy at the European Fund and Asset Management Association, during a Luxembourg for Finance on Tuesday.
The Eltif amending regulation came into effect on 10 January 2024 and seeks to expand investment opportunities, all while maintaining the safety of Eltifs as a vehicle for retail investors.
Eltif amendments expand investment horizons
“The latest amendments are substantial and promise to unlock a lot of new interest expressed already in the significant pickup of authorisation requests since the Eltif review was first announced in 2020,” Cupelli emphasised.
He highlighted the challenges that have faced interest in Eltifs, including perceived restrictions in portfolio management, investor eligibility criteria and tax considerations, which resulted in the use of other alternative investment fund (AIF) structures. Cupelli noted that despite the initial promise of a pan-European passport, the original Eltif framework lacked the flexibility sought by managers and investors, he explained.
Please know that the [European] Commission’s considerations and amendments will be published shortly
Latest RTS soon-to-be public
Cupelli outlined the finalised by the European Securities and Markets Authority (Esma) on 19 December 2023. He added that these standards set key terms related to redemption, liquidity mechanisms and the disclosures costs.
“Their adoption by the commission is, however, still pending, as legal uncertainty has led national supervisors to adopt different approaches to authorising new Eltifs.”
Notice period in the spotlight
“The [European] Commission is currently considering amendments to a few other draft RTS provisions, in particular, the requirement for a default 12-month notice period. Please know that the commission’s considerations and amendments will be published shortly.”
On the topic of notice periods, Cupelli elaborated on Esma's proposal for a default 12-month notice period, which could be reduced to six months or less based on the fund’s increase in liquid assets to a minimum of 40% of the portfolio. However, he noted a concern about the impact of mandating a 40% liquid asset holding on the fund’s exposure to private assets and subsequent performance. “These considerations have been shared with the commission and we are expecting the draft RTS has to be changed on this very crucial point.”
He concluded there will be a six-week review period, with the European Council and the parliament having three months to object, extendable by another three months. Cupelli said that he expected agreements on the RTS between Esma and the commission before summer, with formal adoption anticipated by Q4 pending no objections from the new European Parliament and the council.
Regulators’ different approaches
Despite regulatory uncertainties, the revised Eltif product proved to be attractive to investors. “At the start of the review, I recall counting nearly 17 Eltifs in the official Esma public register. This number today stands at just over 100,” Cupelli stated.
He noted that, while there is a clear “renewed appetite” for investments “in a revised Eltif structure”, there are several short-term risks worth considering.
The national regulators have adopted different approaches to Eltifs. Some national regulators have indicated that they would use the draft RTS as guidelines, adjusting as needed, while others have required funding rules to be reviewed after level two is enacted later this year. Another approach involves one authority’s intention not to authorise open-ended Eltifs until level two is finalised, he explained.
Cupelli highlighted the need for clarity and confidence among market participants.
Revised Eltif more appealing for everyone involved
“One can definitely conclude that the latest reform has made the Eltif far friendlier for managers and their clients alike,” said Cupelli.
He noted the removal of 10% individual exposure limits and the €10,000 minimum investment amounts opened the structure to considerable investor demand, particularly on the retail end. “The reform has therefore undoubtedly moved in the right direction. The true test, however, will be to gauge the retail investors take-up of Eltif as this will ultimately spell its long-term success.”
Watch the replay of the “Focus on long-term investments” webinar .