ELTIF 2: Opportunities to grasp for Asset Managers and investors
The new European Long-Term Investment Funds regulation (ELTIF 2 or ELTIF review) becomes applicable on 10 January 2024. This updated regulation is welcome by the fund industry. It is expected to create a more attractive framework for long-term investments, to provide more flexibility to Asset Managers and to improve access to retail investors.
Why was the ELTIF regulation review necessary?
In April 2015, the regulation on European Long-Term Investment Funds* (ELTIF) was introduced with the goal to channel funds towards European long-term investments and to help finance notably the green transition.
This regulation was not as successful as expected. As of 2021 – six years after the regulation was in force - according to ESMA figures only 57 ELTIFS have been authorized in few European Union (EU) Member States with a relatively small amount of net assets under management (EUR 2.4 billion) due to obstacles in the regulatory framework such as restrictive investment rules and risk diversification requirements.
Therefore, the European institutions conducted a review of the ELTIF regulation which led to the ELTIF 2 regulation** published in the Official Journal of the EU on 20 March 2023 in order to make these investments funds more attractive and easier to invest in.
What are ELTIF 2’s key enhancements?
ELTIF 2 enhancements are notably:
A wider scope of eligible assets, the threshold for the proportion of an ELTIF’s capital that must be invested in eligible assets is of 55% instead of 70%;
The rules on risk diversification requirements, acquisition limits and restrictions on leverage are more flexible;
The minimum investment amount of EU 10,000 for retail investors with a portfolio of less than €500,000 is cancelled;
The market capitalisation threshold for listed qualifying portfolio undertakings is increased from EUR 500 million to EUR 1.5 billion to provide ELTIFs with a better liquidity profile.
What is the timeline for the ELTIF regulation?
The ELTIF 2 regulation starts applying as from 10 January 2024, with a five- year transitional period for already authorised ELTIFs that are still raising capital and an opt- in regime, for those ELTIF managers who want to opt into the new rules, by notifying their local national competent authority.
In the coming months, ESMA regulatory technical standards are expected to be published as a complement to ELTIF 2 regulation.
Marie-Claire de Saint-Exupéry, Senior Adviser Public Affairs, Societe Generale Securities Services
* ELTIF regulation (EU) 2015/760
** ELTIF 2 regulation (EU) 2023/606