The European Commission is preparing to present a targeted revision of Regulation (2015/760) governing European Long-Term Investment Funds (ELTIFs), in order to facilitate the use of these still underused instruments in the European Union.
The Regulation outlines a prudential framework and a European label allowing professional and retail investors to invest in long-term projects, such as transport or social infrastructure, real estate and SME financing. However, in five years, only 57 ELTIF funds have been set up in the EU.
Five years on from the implementation of the Regulation, the Commission notes that “the advantages of ELTIFs are diminished by the restrictive fund rules and barriers to entry for retail investors”. “These restrictions are the key drivers of the ELTIFs’ failure to scale up significantly,” it adds in a draft Regulation that was shared with EUROPE.
In concrete terms, based on a public consultation which demonstrated the appetite of financial stakeholders and national competent authorities for a targeted legislative review, the Commission will suggest broadening the scope of eligible assets and investments. To this end, it will suggest that investments should no longer be limited to projects physically located in the EU. In addition, revising the definition of ‘real assets’ will allow investment in assets that do not necessarily generate a financial return, are difficult to value or are intangible (e.g. intellectual property).
Minimum thresholds. Barriers for retail investors will be reduced. In particular, the minimum ‘entry ticket’ required for an ELTIF fund will be lowered to €10,000.
In order to make ELTIF funds more attractive to professional investors, the share of eligible assets representing long-term projects in professional funds will be reduced from 70% to 50%, while retail ELTIF funds will retain a minimum threshold of 70%.
A distinction must be made between funds for retail investors, which can be marketed cross-border, and those for professionals, which are sold only on a national basis, the Commission stresses.
Furthermore, it should no longer be mandatory for an ELTIF fund to be managed by an Alternative Investment Fund Manager based in the same Member State.
Finally, the minimum investment in an ELTIF fund in a physical asset will be reduced to €1 million and there will no longer be a requirement for the funds to hold that asset directly.
The revision of the ELTIF Regulation is linked to the revision of the prudential framework for alternative investment funds, which will also be subject to legislative revision as part of the package to boost the Capital Markets Union (see EUROPE 12835/9).
See the draft regulation: https://bit.ly/3nDVlpp (Original version in French by Mathieu Bion and Damien Genicot)