Delano has gathered from several law firms in the investment fund industry to the European Commission’s of amendments to the regulatory technical standards (RTS) on European long-term investment funds, dated 6 March 2024. The proposals cover the notice period, liquidity requirements, liquidity management tools, redemption gates and cost disclosures.
In the sixth instalment of this series, , head of the investment funds practice at CMS Luxembourg, shares his thoughts.
In a few words, what are the key amendments/changes that the European Commission is recommending to the RTS, in particular with regards to the redemption policy, minimum notice period and liquidity requirements?
The EU commission is overall advocating for a more adaptable approach that accommodates the diverse investment strategies employed by European long-term investment funds (Eltifs).
More specifically, the EU commission’s amendments include some welcome changes, notably in terms of redemption and liquidity management. The minimum 12-month notice period for redemptions would be removed, while the high liquidity requirements would shift from a rigid “one-size-fits-all” approach to a more proportional one, showing the EU commission’s clear intention to move toward a more tailored method.
Such increased flexibility will certainly be welcomed by asset managers, sponsors and investors of semi open-ended funds
The EU commission also supports aligning Eltif liquidity management tools with the requirements of the Alternative Investment Fund Manager Directive (AIFMD) framework and opposes introducing new Eltif-specific requirements. The implementation and activation of redemption gates should finally not be restricted to “certain specific circumstances” or solely tied to the notice period outlined in the calibration table proposed by the draft RTS.
What is your view on these? Are these positive or negative developments when it comes to the Luxembourg market?
By considering existing market practices for retail long-term funds and the unique circumstances of Eltifs, the EU commission demonstrates an astute awareness of the diverse Eltif landscape.
The shift from a rigid “one-size-fits-all” approach to a more proportional one marks the EU commission’s clear intention to increase flexibility of the Eltif framework.
This would encourage greater involvement from retail investors in private assets while maintaining investor protection
While uncertainties remain regarding the implementation of these amendments in Esma’s revised RTS, such increased flexibility will certainly be welcomed by asset managers, sponsors and investors of semi open-ended funds.
When Esma published its draft regulatory technical standards in December 2023, it was mentioned that the 12-month minimum notice period could pose challenges. Has the commission’s communication relieved this concern?
Yes, the proposed removal of the minimum 12-month notice period for redemptions signifies a departure from rigidity. This change enables greater responsiveness to market dynamics and acknowledges that each manager may implement distinct liquidity management features based on the unique characteristics of their products.
Are there any (new) elements that you find concerning? Or any elements that you consider to be good news?
We can only welcome that the EU commission encourages a better alignment between the Eltif regulation, the Packaged Retail and Insurance-based Investment Products (Priips regulation, the Markets in Financial Instruments Directive (Mifid) and the AIFMD, promoting consistency and coherence across financial regulations.
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In summary, if the EU commission’s suggestions are implemented, they would undoubtedly enhance the appeal of Eltifs. This would encourage greater involvement from retail investors in private assets while maintaining investor protection, most probably positioning Eltifs as the new sought-after investment vehicle.