Delano has gathered reactions from several law firms in the investment fund industry to the European Commission’s of amendments to the regulatory technical standards 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 second instalment of this series, , global head of Linklaters’ investment funds practice, shares her 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?
In essence, the EU commission is asking for a more flexible approach reflecting the large variety of investment strategies Eltifs can implement. In particular as regards redemptions and liquidity management tools, the EU commission requests Esma to move away from the proposed one-size-fits-all approach and to allow Eltif managers to adopt different options which may take into account various factors such as the investment style and strategy, redemption gates, leverage profile, investor base etc.
This new draft is definitely a very helpful step into the right direction and will be welcomed by asset managers
We need to be mindful that this new draft may not be the final text though. As described in the EU commission cover letter, this amended proposal has been sent back to Esma, who will now need to form a view on whether they wish to yet once more amend the draft RTS or whether they let the EU commission adopt the now proposed draft. So in essence, not everything is sorted at this stage, but this new draft is definitely a very helpful step into the right direction and will be welcomed by asset managers.
What is your view on these amendments? Are these positive or negative developments when it comes to the Luxembourg market?
These are positive proposals since Luxembourg is the home to many Eltifs which have very different features and profiles. From our discussions with a large number of asset managers, it results that the previous RTS proposal was perceived as a step into the wrong direction and was deemed to make open-ended / evergreen Eltifs unattractive to both sponsors and investors. This could have been a show stopper for many Eltif projects in the make.
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 indeed, the new proposal no longer contains a strict 12-month notice period for all asset classes but it takes a much more flexible approach and thereby resolves this problem while still focusing on investor protection.
Are there any (new) elements that you find concerning? Or any elements that you consider to be good news?
Another helpful point is the proposed changes to cost calculations. Indeed, the previous calculation model was deemed to be difficult to implement in an evergreen Eltif context where the “capital” (as defined in the Eltif regulation) cannot really be calculated since many Eltifs are aiming at a lifetime of several decades with permanent in- and outflow of money.