Curated by Salvatore Providenti, Marco Coluzzi and Enrico Barmann.
As is well known, with EU Regulation No. 2015/760, the European Long Term Investment Fund (or “ELTIF”) regime was introduced at the European level, with the aim of promoting long-term investments in strategic sectors of the economy, as well as financing towards unlisted companies or small and medium-sized listed companies.
Since its introduction, however, this category of investment funds has experienced a low uptake[1].
The reasons for this include (i) lack of flexibility in terms of portfolio composition; (ii) various obstacles imposing various administrative burdens as well as minimum investment requirements on investors; and (iii) the limited number of eligible investment categories and the inability to request redemption of units or shares before the end of the ELTIF’s life cycle.
This circumstance necessitated a new legislative intervention by the European Union, which was realized with the enactment of EU Regulation No. 2023/606, published in the OJEU on March 20, 2023.
The main changes made to the regulation of ELTIFs are outlined below.
First, the scope of assets subject to investment is expanded, which can now include:
real assets (such as, for example, real assets such as communication, environmental and health infrastructure as well as rights over the use of water, forest and mineral resources);
simple, transparent and standardized securitizations whose underlying exposures correspond to certain categories;
bonds issued, in accordance with European green bond legislation, by an eligible portfolio company.
Breakdown of ELTIF Funds.
With regard to portfolio diversification and composition, the new provisions stipulate that the minimum capital of an ELTIF allocated to assets in eligible investments amounts to 55 percent of its total (and no longer 70 percent). In addition, the possibility of deploying a higher percentage of capital – up to 20 percent instead of up to 10 percent – in equity instruments issued by an eligible portfolio company, in a single real asset, or in units or shares of ELTIFs, EuVECAs, EuSEFs, UCITS or EU AIFs managed by an EU AIFM is recognized.
Also presenting new profiles are the provisions on the marketing and distribution of such funds. In particular, in order to increase the degree of protection for retail investors, units or shares of an ELTIF can only be marketed if an adequacy assessment has been carried out in accordance with the EU MIFID II Directive and a suitability statement has been provided to the retail investor.
As for the additional changes introduced by EU Regulation No. 2023/606, we note:
the raising to 1.5 billion of the maximum capitalization threshold of eligible portfolio companies admitted to trading on a regulated market or multilateral trading facility;
the possibility of co-investment of firms, as well as their staff, that are part of the EU AIFMD group managing the ELTIF, provided that certain precautions are taken and regulatory reporting requirements are met;
an increase in the thresholds for maximum loans that can be applied for, to no more than 50 percent of the net asset value (instead of the previous 30 percent) for ELTIFs that can be marketed to retail investors, and no more than 100 percent of the net asset value for ELTIFs marketed exclusively to professional investors for the purpose of not only making investments but also incurring costs and expenses.
Opportunities for Refunds
Lastly, the possibility is recognized for investors to request redemption not only after the date specified in the regulation or the constituent documents of the ELTIF, but also at the end of a minimum holding period, to be determined on the basis of criteria to be defined by ESMA.
The new Regulation shall apply as of January 10, 2024, subject to the possibility that an ELTIF authorized before January 10, 2024, upon notice to the competent supervisory authority, may voluntarily choose to be subject to the new provisions.
[1] In 2021, the total size of the net assets of such funds was estimated at approximately 2.4 billion euros.
