Revisions to the European Long-Term Investment Fund (Eltif) regulation were published in the EU’s official journal in March and entered into force in April earlier this year. Amongst other goals, Eltif 2.0 aims to expand access to assets and remove minimum investment thresholds.
From 23 May to 24 August, the European Securities and Markets Authority (Esma) held a consultation on the draft regulatory technical standards (RTS) under the revised Eltif regulation. In August, Silke Bernard, global head of Linklaters’ investment funds practice, and Stefan Staedter, head of Arendt & Medernach’s New York office, (separately) shared some of their thoughts on the state of Eltifs with Delano.
Delano: Since the entry into force of the Eltif amendments in early 2023, have you seen any “silence,” or pause, in the Eltifs domain?
Stefan Staedter: No, I do not see any “silence,” or pause, in the Eltif domain. At Arendt & Medernach we are working on several projects and we are discussing also with several peers who have no Eltif experience about the potential for their investment and investor strategy. Some players with Eltif experience have also confirmed that they would leverage on their experience and launch Eltifs within the same or also other asset classes.
There are of course some discussions about the potential outcome of the draft RTS for which Esma is currently consulting [editor’s note: Staedter responded to Delano’s questions in August, when the consultation was still running]. However, the discussions concern to a large extent the fine tuning of the redemption features and therefore we are discussing notably how to anticipate the potential outcome in the fund documents. In addition, there are also discussions about the cost features which will need to be seen also in the context of the retail investment strategy. Based on our day-to-day experience there is appetite for Eltifs and we expect a significant growth which will be driven by marketing options within the EU, but also by interest for Eltifs outside of the EU.
Silke Bernard: I don’t see a “pause” or “silence” but quite to the contrary I see a lot of activity by sponsors and portfolio managers to work on potential Eltif investment strategies, exploring options and boundaries, running scenarios within large internal brainstorming groups to prepare their Eltif launches. In parallel, many sponsors are working on the drafting of their Eltif fund documents to be ready and ideally have obtained regulatory approval by year end.
Do you expect to see a minimum holding period, or redemption policy scheme, coming out of this Esma consultation phase?
Silke Bernard: The Eltif RTS consultation is still under way [editor’s note: Bernard provided her responses to Delano in August when the consultation was still open] and it is difficult to anticipate what the outcome will be. From the responses I have seen there seems to be considerable objection to mandatory minimum holding and notice periods, given the large variety of possible Eltif strategies, portfolio construction and income profiles.
I have seen many responses stating that the assessment of the minimum holding and notice periods that would best suit a given strategy should be left to the portfolio manager who should demonstrate to the relevant NCA [national competent authority] that the individual redemption approach is viable. I would hope that Esma and the EU commission will realise that the large variety of Eltif strategies does not really allow for a one-size-fits-all approach which might even be harmful to certain investor groups which might be excluded from investing in Eltifs if such mandatory periods were imposed.
Stefan Staedter: The minimum holding period is a feature which is part of Eltif 2.0 at the level of the Eltif regulation and Esma has been mandated to specify the criteria to determine the minimum holding period. Therefore, we may expect some more guidance on the minimum holding period. However, it should be taken into consideration that the Eltif regulation has added the minimum holding period as an alternative option which means that the asset manager may chose: either the asset manager does not allow for redemptions during the ramp-up period or the investor will need to hold the shares/unit for a certain minimum holding period prior to be allowed to ask for redemptions.
It would be my understanding that if the asset manager opts for the minimum holding period, this will be limited to the initial period as I am not aware that it was intended to turn Eltif 2.0 in a stricter regime than the current Eltif regime when it comes to redemptions.
Is the early opt-in (in April 2023 instead of waiting for January 2024) still a possibility?
Stefan Staedter: Based on our experience this is now less a topic for projects which are in the pipeline as the approval process and marketing notification process will very likely naturally lead the marketing phase to January 2024.
Silke Bernard: The question is rather whether in January 2024 a new regulatory approval process is required or not. I don’t think it makes sense to impose a second approval process for Eltifs that are being approved now and which already build into the prospectus the new rules under the Eltif 2.0 Regulation.
The panel on Eltif regulation at Alfi’s Global Distribution Conference will take place on 20 September at 14:45. Moderated by Silke Bernard, panellists will include Jane Griffin (Pictet Alternative Advisors), René Herren (Partners Group) and Salvatore Sberna (Azimut Investments). They’ll discuss their experience with Eltif 1.0, as well as preparations, expectations and ambitions for Eltif 2.0.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.