On 20th March 2023, the amendments to Regulation 2015/760 on European Long-Term Investment Funds (“ELTIF 2”) was published on the Official Journal of the European Union (“EU”). This development comes after negotiations, proposals, and voting on the amendments to the existing Regulation.
In 2015, the ELTIF Regulation introduced a new type of alternative investment fund (“AIF”) with a unique advantage: that of being able to market its units/shares/interests across the European Economic Area to both professional and retail investors. Despite this advantage, ELTIF entities and the amount of money raised by them, remained considerably low. This is primarily because of the limitations and constraints imposed under the ELTIF Regulation, including rules on eligible assets and diversification, and rules relating to the distribution to retail investors.
The purpose behind the amendments introduced by ELTIF 2 are to do away with the constraints under the 2015 ELTIF Regulation, with mainly the following amendments:
- a broader scope of eligible assets than before, allowing the possibility to invest in: FinTech companies; simple, transparent and standardised securitisations; and green bonds;
- a broader definition of what is a real asset, now defined as ‘an asset that has an intrinsic value due to its substance and properties’, which increases the number of real assets which an ELTIF entity can invest in;
- a possibility of implementing a fund-to-fund strategy;
- a more flexible portfolio made up of more liquid assets and less rigid diversification rules;
- ELTIF entities marketed to professional investors are exempted from the diversification and concentration requirements;
- a clarification that ELTIFs can actually invest the majority of their investments located in third countries;
- an Alternative Investment Fund Manager (“AIFM“) marketing itself an ELTIF entity managed by the said AIFM to professional investors, and which does not provide investment advice, no longer requires a MiFID II license;
- improved access and safer conditions provided to retail investors, mainly with the removal of the EUR 10,000 entry ticket and the minimum net worth requirement.
The new amendments introduced by ELTIF 2 have the potential to promote the ELTIF regime as an ideal fund structure for long-term investments. As stated by the Vice-Chair of the EFAMA Fund Regulation Standing Committee, Antoine de la Guéronnière:
‘The changes to the current ELTIF framework are an excellent and necessary step forward that will assist ELTIF in becoming a complementary source of financing for the European real economy and notably, accessing the almost untapped retail market for longer-term real assets investments’.
ELTIF 2 will enter into force on the twentieth day after its publication on the Official Journal of the EU, that is, on the 9th of April 2023.
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