European Long-Term Investment Funds

Chetcuti Cauchi | Published on 10 Kas 2016

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European Long-Term Investment Fund

 

By the way of the Regulation 2015/760 on the 29 April 2015, the European Union has launched a new investment instrument, the European Long-term Investment Funds (“ELTIF”).

An ELTIF is a type of collective investment scheme, which allows investors to invest in companies and projects that need long-term investment. The objective of these funds is to increase the non-banking finance available for companies. It has to be considered in the context of the Capital Markets Union, with the objective of increasing the sources of funds, for companies investing in the real economy.

Investment fund managers who want to offer ELTIFs need to be authorised under the Alternative Fund Managers Directive (“AIFMD”).

In order to qualify as an ELTIF the fund would meet some requirements:

  • The ELTIF has to invest at least the 70% of its assets in unlisted companies needing long-term capital (transport and energy infrastructure or social infrastructure), listed SMEs, intellectual property, and also European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF).
  •  ELTIF only can be offered by AIF Managers.
  • They used to be for a limited period of time and not usually allow investors to redeem, before the end of its life. Otherwise, it should be clearly explained to investors.
  • They are limited in the use of derivative instruments and the spreading of risk applies.
  • EILTS has limited used of leverage.

The 30% that is not compulsory to invest in long-term capital may be invested in assets that would be eligible for a UCITS fund. This will give to the manager some flexibility in order to sell or replace assets within the fund.

Unlike the EuVECA and the EuSEF, IELTFs can be market to retail investors, with the limit of the 10%of their savings. While Retail investors can be targeted, the main clientele is expected to be pension funds and insurance based companies, which are committed to find assets paying a steady and reliable income in the long-term.

When market to retail investors the IELTS fall under the Regulation for Package Retail and Insurance-based Investment Products (PRIIPs), and so a Key Investment Document shall be distributed to them. Other measures to protect retail investors are: diversification requirements, limits on leverage or the ban in short-selling. Also, EILTFs are subject to the Markets in Financial Instruments Directive (MiFID) and consequently any seller of an EILTF shall assess the suitability of the product for the prospective investor.

Finally, the European Union has put in place an investment instrument that will be open to public-private partnerships to finance the future ambitious infrastructure projects. This Regulation applies since the 9th December 2015.


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Dr Maria Chetcuti Cauchi

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