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European Long-Term Investment Funds Regulation
The "ELTIF regulation"
On 15 June 2014, the Council of the EU published a further compromise proposal (10989/14) dated 13 June 2014 on the European Commission's proposed regulation on “European Long-Term Investment Funds” ( the “ELTIF Regulation”). The terms of the compromise proposal were discussed at the meeting on 16 June 2014.
The text of the ELTIF regulation has been subject to significant discussion and amendment.
In June 2013, the European Commission first published a legislation proposal for a regulation on European Long-Term Investment Funds.
An ELTIF is a new type of fund allowing investors to invest into companies and projects which require long-term capital. Long-term capital finances both tangible assets such as energy, infrastructure, industrial and service facilities, and intangible assets such as education, research and development. To benefit from this cross-border passport the new Funds would have to meet rules designed to protect both investors and the companies and projects invested in. The ELTIF Regulation lays down uniform rules on the authorisation, investment policies, and operating conditions of EU alternative investment funds that are marketed as ELTIFs.
The latest compromise amendments include the following adjustments:
- concern the provisions regarding investment by retail investors, requiring that in instances where a retail investor whose portfolio (excluding any financial instruments used as collateral) does not exceed €500,000, the ELTIF Manager should ensure that the retail investor does not invest an aggregate amount exceeding 10% of his portfolio in ELTIFs, provided that the amount invested in a single ELFIT is not less than €10,000.
- It includes a definition of ‘financial instrument’, being an instrument specified in Section C of Annex I of the draft MiFID II Directive.
- It requires competent authorities to prevent ELTIFs which come under the scope of this regulation from converting into collective investment schemes which are outside the scope of this regulation.
- The provisions regarding marketing to retail investors have undergone substantial changes. The requirements for the ELTIF units to be admitted to trading have been removed. Similarly, ELTIF managers are no longer obliged to request potential retail investors to appraise and value their portfolios of cash deposits and financial instruments or to provide declarations regarding these investments or the aggregate value of previous investments in ELTIFs. Instead, ELTIF managers must be authorised to provide the services referred to in Article 6(4)(a) and (b)(i) of Directive 2011/61/EU (ie, the provision of investment advice and portfolio management) and must perform the suitability test referred to in Article 23(b) (ie, not to require any additional liability or commitments other than the original capital commitment).
- The competent authority of the ELTIF may prohibit the use of the designation ‘ELTIF’ if the manager no longer complies with the ELTIF Regulation.
The terms of the current compromise proposal (10989/14) of the ELTIF Regulation were discussed at the meeting on 16 June 2014. It is likely that a further compromise proposal will ensue shortly.
The new European Parliament is due to resume examination of the ELTIF Regulation in Autumn 2014.