What is the 2023 ELTIF regulation?
Discover the 2023 ELTIF regulation: a reformed European mandate aimed to boost long-term investments. It adjusts European Long-Term Investment Funds rules, optimizes investor opportunities, and aims to stimulate the European economy through persistent investment.
Grand “Answer”:
The 2023 ELTIF regulation refers to the revised European Long-Term Investment Fund (ELTIF) regulation, which aims to make it easier for institutional and retail investors to access long-term investments [1] [2] . Under the 2023 ELTIF regulation, an ELTIF will be required to invest at least 55% of its capital in eligible investment assets, compared to the previous requirement of 70% under the 2015 ELTIF regulation [1]. Eligible investment assets are broadly defined as assets that yield a predictable regular or irregular cash flow [1]. This change in regulation is aimed at increasing the attractiveness of ELTIFs and fostering long-term investments in the European economy [1]. Overall, the 2023 ELTIF regulation aims to improve the access and investment opportunities for both institutional and retail investors in long-term projects [1] [2] .
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ELTIF Regulation: The New Amendments
The recently announced amendments to the European Long-Term Investment Fund (ELTIF) Regulation form an integral part of the European Union's Capital Markets Union initiative. The overarching goal of this initiative is to revitalize the ELTIF market, which, despite its potential, has not scaled up as anticipated due to significant supply and demand constraints. Thus, the Commission proposed changes to make ELTIFs more attractive to both investors and fund managers. ELTIFs are distinctively positioned to channel long-term investments into crucial areas such as green and digital transitions. They represent the only fund type designed for long-term investments that can be marketed cross-border to both professional and retail investors. In light of this, one aim of the amending Regulation was to simplify the process for retail investors to engage with ELTIFs while ensuring strong investor protection. Notable modifications include changes in the scope of eligible assets and investments, portfolio composition and diversification requirements, conditions for borrowing and lending of cash, and other fund rules, such as those concerning sustainability aspects.
Long-Term Investment Fund (ELTIF) Regulation: EU implications
Key takeaways from the amendments cover areas such as eligible assets, portfolio composition, fund of funds and master-feeder structures, and distinctions between retail and professional investors. The revised Regulation lowers the minimum eligible assets threshold to 55% and sets the maximum diversification limit on investments at 20%. It also eliminates the minimum value threshold for individual real assets and raises the market capitalisation threshold for investment in listed portfolio undertakings, which should provide ELTIFs with a better liquidity profile. Fund-of-fund strategies' eligibility has been extended beyond investments in EuVECAs or EuSEFs, and now include UCITS and EU AIFs managed by EU AIFMs. However, to ensure effective investor protection, these funds must invest in eligible investments and must not themselves have invested more than 10% of their capital in any other collective investment undertaking. The amendments also cater to the different investment needs of professional and retail investors. While specific rules have been set for ELTIFs marketed solely to professional investors, the requirements for retail investors have been streamlined. For example, the initial minimum investment of EUR 10,000 and the aggregate investment limit of 10% of the investor's financial instrument portfolio have been removed, making it easier for retail investors to participate.
Additionally, ELTIFs have been encouraged to invest in green bonds and securitised assets, reinforcing the importance of sustainable finance. While the proposal for an optional 'Green ELTIF' designation was not retained, the Commission will consider this possibility by 2026. For ELTIFs compliant with the prior Regulation before 10 January 2024, a grandfathering clause will allow them to adhere to the old Regulation until 11 January 2029, unless they choose to follow the new one. However, the updated Regulation will come into effect on 10 January 2024. These amendments present exciting opportunities for the FinTech industry and investors alike and aim to foster long-term investments within the EU, particularly in the areas of green and digital transitions.
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