The revised regulation on the European Long Term Investment Fund (ELTIF) was published in the Official Journal of the EU today and will in principle apply from 10 January 2024, although an earlier use of the new regime is possible. The changes include among others more flexible investment rules, the removal of certain restrictive thresholds and minimum investment amounts, all of which is expected to make the ELTIF substantially more attractive as a vehicle for retail investors interested in alternative assets.
What is the ELTIF ?
The initial version of the ELTIF was established by way of a European Regulation back in 2015. It was intended to be a mixture of the UCITS product regime and the AIFMD manager regime, allowing retail investors access to asset classes such as private equity, real estate or debt based on a passport regime throughout the EU and by way of a fund regime that required a prior authorisation by the national regulator. However, it proved to be a complete failure, with only a minimal number of ELTIFs established and a negligible market share. The new revised regime intends to remedy the causes for such failure.
What makes ELTIF 2.0 more attractive than the initial regime ?
The new regulation addresses the main shortcomings of the initial regime, such as for example :
- Fund-of-fund investments into certain AIFs are now possible, as well as investments into securitisations and green bonds
- Co-investments are allowed
- Investments outside the EU are far more easily permitted
- Minimum threshold for real estate strategies removed
- Capitalisation limit for investment into listed companies increased to 1.5bn EUR
- Portfolio and risk diversification rules have been substantially softened and made more flexible
- Minimum investment amount removed (including 10% exposure limit)
- Simplified redemption regime
- Alignment with MiFID II suitability test will make distribution simpler
For which investors is the ELTIF conceived ?
It is essentially aimed at retail investors, i.e. those that are not professional investors. The latter can already use alternative investment funds (AIF) pursuant to the AIFM Directive, which are substantially more flexible and do not require an approval of the investment fund itself by a regulator. While there exist fund structures for retail investors that can also accommodate alternative assets (such as the so-called part II funds in Luxembourg), the ELTIF can be distributed similar to an AIF by using a European passport, i.e. by a simple notification regime.
Why should you establish your ELTIF in Luxembourg ?
The vast majority of existing ELTIFs is located in Luxembourg (47 out of 85 as of January 2023). Accordingly, the Luxembourg regulator CSSF and the service providers in Luxembourg have considerable experience with this product. That should result in a faster time to market and a more robust and professional product.
When can I start my ELTIF project ?
The new regulation enters into force 20 days from today (i.e. on 9 April), and becomes applicable, in principle, on 10 January 2024. However, initiators of new projects can elect to use the new regime already now and file them with the Luxembourg regulator CSSF. The CSSF will be pragmatic in applying the new, more flexible regime instantly. Similarly, existing ELTIFs under the initial regime can opt into the new regime.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.