European long-term investment funds (ELTIF) - new tools for long-term investments

Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds has been published in the Official Journal of the European Union. 

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. 

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. 

ELTIF funds shall invest in:

  • 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.

Only 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. Additionally, trading in assets other than long-term investments, in particular: shares, instruments of money market – for example securities transferable on money market such as treasury bonds, short-term bonds, shares in UCITS funds and deposits with maximum 12-month maturity date – will only be permitted up to a maximum of 30% of their capital. 

Time of existence of the ELTIF fund shall be clearly determined. It shall be sufficiently long to cover life cycle of each asset held in its portfolio. Details shall be determine by European Securities and Markets Authority (ESMA) in the form of technical standards. What’s important, investor cannot claim the redemption of ELTIF shares before the end of its existence. However, the investor may, at any time, sell the shares in ELTIF on the secondary market.

Introduction of EU legislation on funds which shall be released as ELTIF funds, has to result in increase investor’s knowledge, what should, on the other hand, increase their confidence to the market. At the same time ELTIF funds have the chance to fill the existing gap in the market: up to now in Europe there is a lack of such category of long-term funds, which would be available to the private investors.