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European long-term investment funds (ELTIFs), by virtue of the asset classes that they will be allowed to invest in, are expected to provide investors with long-term, stable returns.
Alternative investments
The creation of clearly defined ELTIFs will help tackle barriers to long-term investment in, for example, infrastructure projects, thereby stimulating employment and economic growth. ELTIFs will only focus on alternative investments that fall within a defined category of long-term asset classes whose successful development requires a long-term commitment from investors.
This will include:
- non-listed undertakings that issue equity;
- debt instruments for which there is no readily identifiable buyer;
- real assets that require significant up-front capital expenditure;
- SMEs admitted to trading on a regulated market or on a multilateral trading facility[1].
Eligibility
Only EU alternative investment funds (AIFs) that are managed by alternative investment fund managers (AIFMs), authorised in accordance with directive 2011/61/EU on AIFMs, will be eligible to market themselves as ELTIFs. ELTIFs will be subject to additional rules requiring them, inter alia, to invest at least 70% of their capital in clearly-defined categories of eligible assets. Trading in assets other than long-term investments will only be permitted up to a maximum of 30% of their capital.
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.
Investor protection
ELTIFs will target both professional and retail investors in the EU. The regulation lays down rules to protect investors, in particular retail investors. The fund manager or distributor must ensure that a retail investor with a portfolio[2] of up to €500 000 doesn't invest an aggregate amount exceeding 10% of his/her portfolio in ELTIFs, provided that the initial amount invested in one or more ELTIFs is not less than €10,000.
Moreover, where the lifecycle of an ELTIF exceeds ten years, the fund manager or distributor must issue a written alert that it may not be suitable for retail investors unable to sustain such a long-term and illiquid commitment.
Next steps
Adoption of the regulation follows an agreement reached with the European Parliament in December 2014 at first reading.
The regulation will enter into force on the twentieth day following its publication in the Official Journal.
[1] In accordance with directive 2014/65/EU on markets in financial instruments (Mifid II).
[2] Excluding any financial instruments that have been given as collateral.
