Regulation (EU) 2023/606 (the “ELTIF 2 Regulation”) amending Regulation (EU) 2015/760 of 29 April 2015 on European Long-Term Investment Funds (ELTIFs) was published in the Official Journal of the European Union on 20 March 2023. It entered into force on 10 January 2024 and was supplemented by Regulatory Technical Standards (RTS) published on 26 October 2024.
ELTIF 2.0 benefits
ELTIFs are European Alternative Investment Funds (AIFs) managed by a European Alternative Investment Fund Manager (AIFM) with a long-term ELTIF label. Introduced by European Regulation 2015/760, which came into force in December 2015 (ELTIF 1.0), ELTIFs aim to finance the real economy by channelling non-bank capital to long-term infrastructure projects and SMEs financing[1].
Since their introduction in 2015, the take-up of these new long-term funds has been lower than expected. No more than a hundred ELTIFs have been launched for a total of EUR 2.4 billion raised, domiciled in only four countries[2].
In November 2021, the European Commission proposed a new version of the ELTIF regulation, with extended marketing rules for retail investors and more flexible investment rules for managers, while adding investments that promote the Green Pact for Europe.
ELTIF 2.0 now enables ELTIF-approved European AIFs to:
- Raise capital from professional clients but also from retail investors in the 27 Member States of the European Union by removing the threshold constraints of the first version of the regulation. Initially, retail investors had to invest a minimum of EUR 10,000 in an ELTIF without exceeding 10% of their overall portfolio of financial instruments in the ELTIF.
- Invest in a wider range of eligible assets
Eligible assets under ELTIF 2.0
Eligible assets must now represent at least 55% of an ELTIF’s net assets instead of 70%. Below are the new eligibility rules.
For eligible enterprises (equity or quasi-equity, debt instruments and loans)
- Financial fintechs are now eligible alongside financial companies
- The eligibility of unlisted companies is unchanged but listed companies are now eligible when their market capitalisation is less than EUR 1.5 billion (vs. EUR 500 million previously)
- Eligibility rules for third-country companies are eased
- Green bonds are now eligible
- Simple, Transparent and Standardised (STS) securitisations are eligible under certain conditions
Concerning real assets
- Removal of the requirement of economic or social benefit
- Removal of the minimum investment threshold (previously, each asset had to have a minimum value of EUR 10 million)
- Virtually total eligibility of real assets excluding artwork, wine, etc.
Regarding fund shares, UCITS and AIFs managed by European AIFMs are now eligible alongside ELTIF shares, European Venture Capital Fund shares (EuVECAs) and European Social Entrepreneurship Fund shares (EuSEFs).
New ELTIF investment rules
Investment policy and portfolio composition rules are simplified. In addition to the
reduction in the minimum share of assets eligible for investment mentioned above, ELTIF 2.0 brings the following changes.
Exposure to the same entity:
- For retail investors,
- Up to 20% of the assets can be invested in the same company, real asset or fund
- This cannot constitute more than 10% for the pool of non-eligible assets (i.e. assets eligible for UCITS in accordance with the assets referred to in Article 50(1) of UCITS Directive 2009/65/EC)
- There is no limit for professional investors
Concentration limit
The 25% threshold is raised to 30% for an underlying fund. This limit does not apply for professional investors or for master/feeder fund structures.
Indirect strategies
- An ELTIF can now be a feeder to another master ELTIF. Under the original ELTIF rules, a feeder fund could not itself be labelled as an ELTIF
- Fund-of-funds structure are feasible, with any type of European underlying fund, up to 100% of the assets, with a maximum of 20% exposure to the same fund as specified above. Until now, fund-of-funds schemes were only possible with an underlying ELTIF, EuVECA and EuSEF, within a limit of 20% of net assets and with a maximum of 10% exposure per fund
Concerning borrowing
- The 30% limit is raised to 50% of net assets for retail investors, and up to 100% for professional investors
- Conditions related to borrowing requirements are also more flexible. The allocation is no longer limited to eligible assets and, provided that the fund issues a reminder that the borrowing must be carried out in the same currency as the investments, exchange risk can be covered appropriately
ELTIF 2.0 technical standards – Adoption on 26 October 2024
On 19 December 2023, ESMA published the final report setting out the draft Regulatory Technical Standards (RTS). The text notably specifies when derivatives will be used solely for hedging purposes, certain criteria for the disposal of an ELTIF’s assets, certain elements of the cost disclosure, the redemption policy and the liquidity conditions to be met by open-ended ELTIFs sold to retail investors.
Regarding the last point, ESMA clarifies specifically:
- The maximum redemption frequency is quarterly in principle. However, an ELTIF manager can choose a higher frequency if they are able to justify the consistency of the NAV (net asset value) with the valuation of the fund’s assets to the relevant National Competent Authority (NCA).
- Minimum holding period: managers can choose the holding period that is best adjusted to the product based on criteria defined in the RTS. They must justify their choice to the NCA considering the nature of the investments, the investment strategy of the fund, the type of investors, the composition and diversification of the assets, their valuation or the liquidity profile of the underlying assets.
- Liquidity management mechanisms: in addition to the notice period, ESMA proposes the introduction of gates and another liquidity management tool. Managers can, however, deviate from it if they can justify their choices in terms of tools, calibration or activation conditions.
- The notice period is normally a 12-month period, but a shorter notice period is possible. ESMA has published a table that provides, depending on the notice period chosen by managers, both the minimum percentage of liquid assets that the fund must have and the maximum percentage of liquid assets that can be sold at each NAV.
On 6 March 2024, the European Commission informed ESMA of the partial rejection of the RTS. The European Commission asked ESMA to consider all the changes they required and review the draft RTS.
The requested changes relate in particular to the easing of the liquidity conditions to be met by ELTIF-labelled open funds described above.
After several back-and-forth exchanges between the European Commission and ESMA, the Commission approved and published the final RTS on 25 October 2024, paving the way to effective development of open-ended ELTIFs.
The ELTIF 2.0 RTS came into force on 26 October 2024.
This version of the RTS gives asset managers the choice to decide which liquidity conditions are most appropriate for their ELTIFs while maintaining safeguards. To calibrate the maximum percentage of redemptions per NAV, asset managers have the choice between two methods based on:
- the frequency of redemption and the ELTIF’s notice period (Annex 1 of the RTS) or
- the frequency of redemption and the minimum percentage of liquid assets (Annex 2).
Regarding liquidity management tools: in addition to gates, an asset manager has the possibility, but no longer the obligation, to select Anti-Dilution Levy (ADL), swing pricing or redemption fees mechanisms.
Concerning the minimum holding period, there is no fixed duration but asset managers are responsible for setting the minimum holding period based on the fund’s specific characteristics and estimated time required to deploy the collected capital (for example, an ELTIF with long construction timelines projects like infrastructures can justify a longer minimum holding period).
This long-term vehicle now opens the possibility for retail investors to invest in unlisted asset classes, thus meeting one of the objectives of the Savings and Investment Union to benefit from long-term supports and to raise capital from retail investors, in addition to institutional investors, to finance the real economy. Furthermore, an ELTIF is the only AIF benefiting from the marketing passport in the EU.
The latest ESMA register reports 159 ELTIFs, 84 of which are either open to retail investors or open to professional and retail investors. Their home member state is respectively, by number of funds, Luxembourg, France, Italy, Ireland and Spain.
On 6 November 2024, a corrigendum to the RTS (Corrigendum to the Delegated Regulation (EU) 2024/2759 of 19 July 2024) was published in the Official Journal to correct minor typos in Article 8(4) chapeau and Article 9(1), point (e). In both cases the word “existing” was used instead of “exiting”.
In February 2025, the European Commission issued a Q&A to specify that ELTIFs are not permitted to apply different (a) notice periods, (b) redemption gates and/or (c) redemption frequency for different classes of units or shares of ELTIFs. For the Commission, this ensures fair treatment of investors. Furthermore, the EC stated that different redemption thresholds among different classes of units or shares would prevent the ELTIF manager from aggregating all redemption requests received during the same period and processing them on a pro rata basis, as required by the ELTIF Regulation.
ESMA is currently working on Q&As to clarify the RTS on redemption policy, investment strategy, indirect investments and national-related eligibility restrictions on ELTIF stemming from national law. They are due to be answered and published by the European Commission in May 2025.
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[1] Small and Medium Enterprises
[2] Including 14 funds labelled in France, mostly in the form of specialised professional funds ((Fonds Professionnels Spécialisés or FPS)
Links
Publications Office (regulation 2023/606 amending regulation 2015/760 as regards the requirements pertaining to the investment policies and operating conditions of European long-term investment funds and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of cash and other fund rules)
Delegated regulation – EU – 2024/2759 – EN – EUR-Lex
Delegated regulation – 2024/90705 – EN – EUR-Lex (corrigendum to RTS)
Register of authorised European long-term investment funds (ELTIFs)
ESMA_QA_2013
