Great Fund Insights: The European long-term investment fund (ELTIF) Review
Partner - Brussels/Antwerp
Ellen Cramer-de Jong
Dominic von Wulffen
Salvador Ruiz Bachs
20 October 2022
A further step towards the retailisation of alternative investment funds in Europe.
The European long-term investment fund (ELTIF) is an EU fund regime that was introduced in 2015 by regulation (EU) 2015/760 (the ELTIF Regulation) to boost long-term investments through EU alternative investment funds (AIFs) in the European real economy, such as transport and social infrastructure projects, properties and capital or private debt of small and medium sized enterprises (SMEs).
One of the attractive features of the regime is that ELTIFs may avail of an EU retail marketing passport. Today, ELTIF is the sole pan-European vehicle Venture Capital Funds set apart – that allows managers to offer certain alternative investment strategies to retail investors via an EU retail marketing passport.
However, ELTIFs that want to benefit from the retail passport must comply with additional and burdensome regulatory requirements which aim at ensuring a high level of investor protection.
The ELTIF label is also of particular interest for the structuring of funds originating loans to borrowers based in certain Member States (such as France), where cross-border lending by an AIF would otherwise be prohibited.
As of September 2022 though, there are only 79 ELTIFs (43 in Luxembourg, 21 in France, 13 in Italy and 2 in Spain). Market players often attribute the limited success of ELTIFs to the overly prescriptive investment rules and complex marketing rules.
Despite a slow start, the ELTIF regime is gaining momentum as the number of ELTIFs has more than doubled since end of 2020.
The momentum is fuelled by tax incentives which have been introduced in certain Member States, including Italy and Belgium, but also by the upcoming review of ELTIF Regulation.
On 25 November 2021, the European Commission (EC) presented its proposal for revamping the ELTIF regime (the Proposal). The Proposal aims at simplifying and enhancing the overall attractiveness of the ELTIF regime as well as facilitating retailisation across Europe. On 24 May 2022, the Council announced having adopted its position and published a compromise text with light amendments to the Proposal.
However, the last report on the Proposal of the Committee on Economic and Monetary Affairs (ECON) in the European Parliament, which was adopted on 20 June 2022, suggests more substantial changes. Indeed, in the related press release, the Members of the European Parliament have announced among other things their wish to create “an optional sub-category of ELTIFs marketed as environmentally- sustainable to collect capital from investors looking for sustainable investments”, which would be subject to stricter requirements.
However, part of the industry fears that this new category of “Sustainable ELTIF” will add overly complicated rules to the existing sustainable framework under the Regulation (EU) 2019/2088 (SFDR) and undermine the attractiveness of ELTIFs.
The legislative process may likely end this year but the new ELTIF rules are not likely to apply before 2023 as the contemplated entry into force of the rules may be between six months to one year after publication of the regulation.
This brochure aims at providing a high-level overview of the current ELTIF regime as well as the most salient features of the Proposal.