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European Long-term Investment Funds Regulation

European Parliament Approves Amendments to Proposed ELTIF Regulation

The European Parliament has approved a number of amendments to the proposed Regulation on European Long-term Investment Funds (ELTIF Regulation).

These include:

  • The recitals have been revised to state that a number of measures should be introduced to make ELTIFs a feasible and attractive investment for institutional investors (e.g. pension funds). These include:
    • Necessary adjustments to the regulatory own funds requirements applicable to such institutional investors
    • The provision of tax incentives, at national level, relating to long-term investments via ELTIFs, such as tax deductions
  • Equity or debt instruments issued by listed SMEs and equity or debt instruments issued by listed undertakings of maximum capitalisation of EUR 1 billion will each constitute eligible investment assets of an ELTIF
  • At least 60 % of an ELTIF’s capital will need to be invested in securities issued by an eligible portfolio undertaking established in the European Union
  • It will be possible to extend or reduce the life of an ELTIF to allow for more flexibility, where, for instance, a project is completed later or earlier than expected
  • An ELTIF should not invest in an eligible investment asset in which the ELTIF manager has or takes a direct or indirect interest other than by holding units or shares of the ELTIF it manages
  • The categories of investors permitted to invest in an ELTIF have been defined as “retail investors”, “semi-professional investors” and “professional investors”
  • Each ELTIF will be required to maintain, at the predefined redemption periods, a liquidity reserve
  • In the case of an ELTIF with retail investors, all investors will be permitted to redeem their units or shares before the end of life of the ELTIF. However, redemption of units and shares will only be possible after the life of the ELTIF is halfway and for a maximum of 20% of the total amount of the ELTIF

The importance which the EU Parliament ascribes to the development of ELTIFs as an attractive asset class is clear from the following statement which was inserted into the Recitals by the EU Parliament: “Member States, as well as regional and local authorities have a significant responsibility in effectively promoting and marketing ELTIFs to investors, as well as providing specific information to citizens and consumers about the benefits offered by that new framework.”

Council of the EU Compromise Proposal on ELTIF Regulation

Following the adoption by the EU parliament of amendments to the ELTIF Regulation, the Council of the EU published a compromise proposal which sets out a different position to the EU Parliament as follows:

  • ELTIFs should not be divided into professional investor ELTIFs on the one hand and ELTIFs which can be invested in by both professional and retail investors on the other
  • Loans granted by an ELTIF must not exceed 30% of the capital of the ELTIF, with loans to any one qualifying portfolio undertaking not exceeding 10% of capital
  • Retail investors should not be granted the redemption rights introduced as part of the amendments approved by the EU Parliament. Accordingly, the prospectus of an ELTIF should expressly state that investors shall have no right to redeem their investment until the end of the ELTIF’S life
  • The ELTIF Regulation will enter into force on the twentieth day following its publication in the Official Journal of the EU but will only apply from 6 months after that date

Next Steps

EU negotiations on the proposal will continue following the election of the new European Parliament in May.  We will keep you informed of developments in this context.

Contributed by Niall Crowley