Europeam Long term investment Funds ("ELTIFs") have been created by a new regulation on European long-term investment funds aiming at increasing the pool of capital available for long-term investment in the European Union economy. The Regulation falls within the scope of the Europe 2020 Strategy announced by the European Commission in 2010 to boost growth in Europe and to put Europe back on track towards a “smart, sustainable and inclusive economy”.
Eligibility
Only EU alternative investment funds (AIFs), managed by alternative investment fund managers (AIFMs) will be eligible to market themselves as ELTIFs throughout the EU. An EU AIFM that decides to offer ELTIFs will also have to be approved to manage an ELTIF, and comply with both the requirements of the AIFM directive and the requirements set out in the Regulation.
Investor Protection
Although subject to the AIFMD regime, ELTIFS may be considered as a « hybrid » concept standing between the AIFM and the undertakings for collective investment in transferable securities (“UCITS”) regimes as ELTIFs are designed for both institutional and retail investors. As a consequence, ELTIFs will be subject to additional requirements aimed to protect retail investors which include, inter alia, the requirement to appoint a depositary that complies with UCITS V directive and the issuance of a Key Information Document explaining its features and its risks pursuant to the Packaged Retail and Insurance-based Investment Products regulation of 26 November 2014.
The AIFM must ensure that a retail investor with a portfolio of up to EUR 500.000 does not invest an aggregate amount exceeding 10% of his portfolio in ELTIFs, provided that the initial amount invested in one or more ELTIFs is not less than EUR 10.000. Retail investors are responsible for providing accurate information regarding their patrimonial situations.
In addition, the Regulation provides transparency rules such as the prior publication of a prospectus necessary to allow investors to make an informed decision regarding the proposed investment and the publication of annual reports.
Moreover, when the lifecycle of an ELTIF exceeds ten years, the AIFM must issue a written alert that it may not be suitable for retail investors unable to sustain such a long-term and illiquid commitment.
Concentration Limits
ELTIFs are subject to diversification requirements such as the requirement to invest at least 70% of their capital in eligible investments assets, listed in the Regulation, by the date specified in the ELTIF rules or instruments of incorporation, which may not exceed five years after its authorisation as ELTIF.
An ELTIF may acquire no more than 25% of the units or shares of a single ELTIF, EuVECA or EuSEF.
Trading in assets that would be eligible investments for a UCITS will only be permitted up to a maximum of 30% of their capital provided that certain conditions are met.
Redemption
ELTIFs generally do not offer redemption rights before their end of life. This must be clearly indicated as a specific date in the ELTIF rules or instruments of incorporation and disclosed to investors. However, to protect retail investors, the Regulation provides for redemption rules that would allow an ELTIF which has enough liquid assets to organize, under certain conditions, the possibility for redemptions before the end of life of the ELTIF.
The Regulation is applicable since 9 December 2015 and a new update of the law is coming.
(article date : 31/12/2022)
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