The European Commission created the "European Long-Term Investment Fund" (ELTIF) label under the Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 (the “ELTIF Regulation”) for alternative investment funds that meet certain criteria. ELTIFs invest in long-term projects with a maturity date of between 10 to 20 years, and benefit from the EU passport for marketing across the European Economic Area (EEA).
ELTIFs are unique in that they can be marketed to both professional and retail investors and are the first alternative investment funds authorized for retail investors to invest in alternative assets. The creation of the ELTIF label aims to encourage long-term investment in the EU and provide investors with access to alternative assets while ensuring adequate investor protection.
The ELTIF Regulation has been amended by Regulation (EU) 2023/606 of the European Parliament and of the Council of 15 March 2023 (the “Amending Regulation ”).
The Amending Regulation has entered into force on 10 April 2023 and shall apply from 10 January 2024.
It is expected to make ELTIFs more attractive to asset managers, particularly for retail investors seeking access to private assets with adequate investor protection.
Open-ended and closed-ended ELTIFs that are still being marketed will have 5 years to comply with the new rules (i.e. until 11 January 2029), while closed-ended ELTIFs that do not raise additional capital are deemed to comply with this amending Regulation.
- Embracing Flexibility in Eligible Assets: ELTIF 2.0 fosters adaptability by reducing the minimum percentage of capital required to be invested in eligible assets from 70% to 55%. This change empowers ELTIFs to explore a more diversified investment portfolio that can include cash and liquid securities, while still maintaining the much-needed investor protection. Investors can now breathe easy, knowing that their money is being put to work in an array of promising investment avenues.
- Empowering Growth with Qualifying Portfolio Undertakings: The increase in the maximum market capitalization of listed qualifying portfolio undertakings to EUR 1.5 billion breathes new life into ELTIFs. By allowing them to invest in larger companies, ELTIFs can now potentially generate higher returns while maintaining a robust investor protection framework. This empowerment of growth opens doors to exciting investment prospects that were previously out of reach.
- Global Perspectives: Investments in Third Countries: ELTIF 2.0 encourages investors to think globally while acting responsibly. ELTIFs can now have an investment objective to invest mainly outside the EU, as long as they steer clear of non-cooperative jurisdictions for tax purposes. This global perspective ensures that investments align with sustainable practices, contributing to a more equitable and responsible financial landscape.
- Embracing Collaboration: Investments in Funds: The new regulatory framework fosters collaboration by allowing ELTIFs to invest in European Union Alternative Investment Funds (AIFs) and UCITS managed by an EU AIFM. This not only promotes cross-border investment but also strengthens support for emerging companies and sectors. Investors can now be part of innovative ventures that drive economic growth and innovation within the EU.
- Simplifying Real Assets: With the simplified definition of "real asset," ELTIFs can explore a broader range of investments, from infrastructure assets to intellectual property equipment, machinery, aircraft or rolling stock, as well as water, forest, building, and mineral rights. This simplification not only offers more opportunities but also promotes investment in the EU, contributing to its long-term economic prosperity.
- Aligning Interests: Co-investments: By allowing ELTIF managers, affiliates, and staff to make co-investments alongside the ELTIF, ELTIF 2.0 aligns interests and strengthens investor confidence. Transparent measures to manage conflicts of interest ensure that investors' interests are at the heart of every decision.
- Promoting Sustainable Investments: Permitted Investments in Securitisations and Green Bonds: ELTIFs can now invest in simple, transparent, and standardized securitizations with an STS Label and green bonds, promoting a sustainable and responsible approach to investment. These investments contribute to a cleaner and greener future while maintaining transparency and standardization for investors.
- Empowering Non-Retail ELTIFs: Investment Limits and Borrowing/Leverage Rules: Non-retail ELTIFs can now enjoy more flexibility in structuring their investments and responding to market conditions. Waived risk diversification requirements and increased borrowing limits enable ELTIFs to tailor their strategies to suit their specific objectives, driving growth and innovation.
- Enhancing Liquidity: Term and Liquidity - Redemption Rules: The introduction of optional liquidity windows and secondary market trading offers investors greater liquidity and flexibility, further enhancing their investment experience and providing more relief.
- Streamlined Processes: No Approval of ELTIF Manager: By removing the requirement for approval from the ELTIF's home Member State regulator, ELTIF 2.0 simplifies the process for EU authorized AIFMs, encouraging cross-border investment and minimizing administrative burdens.
- Greater Transparency: Cost Disclosure Requirements: Aligned cost disclosure requirements provide investors with clear and standardized information on investment costs, promoting transparency and informed decision-making.
In conclusion, ELTIF 2.0 heralds a new era of investment possibilities, all while maintaining robust protection for investors. By embracing flexibility, empowerment, collaboration, and sustainability, ELTIFs open the door to brighter investment horizons for investors from all walks of life. With these transformative regulatory changes, ELTIF 2.0 not only offers relief and interest but also sets the stage for a prosperous and sustainable financial future within the EU.