The updated regulation will make these investment funds more attractive to asset managers and investors, and develop the number of such investment funds in Europe. ELTIFs are important funds to help finance the green and digital transitions, and they can help finance small and medium-sized enterprises (SMEs). They have an important role to play in the deepening of the Capital Markets Union (CMU).
Since 2015, the ELTIF regulatory framework has set up these new type of funds, by detailing fund rules on eligible assets and investments, diversification and portfolio composition, leverage limits and marketing. ELTIFs are the only type of funds dedicated to long-term investments which can be distributed on a cross-border basis to both professional and retail investors. However, since its adoption, only a limited number of ELTIFs have been launched, and only in four member states (France, Italy, Luxembourg and Spain), due to significant constraints in the distribution process and stringent rules on portfolio composition.
The review is expected to unlock untapped potential to mobilise capital for the financing of long-term projects. It will:
- Make the creation of such funds more attractive for asset managers, by updating the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules, the requirements pertaining to the authorisation, investment policies and operating conditions of ELTIFs.
- Make it easier for retail investors to invest in ELTIFs, in particular by removing the minimum €10,000 investment threshold, while ensuring strong investor protection.
In its position, the Council underlined three priorities:
- Channel more financing to SMEs and long-term projects, including by removing existing constraints on the portfolio composition of ELTIFs, especially for those distributed solely to professional investors;
- Enhance the role of retail investors by making ELTIFs more attractive to them, and by lifting the barriers to entry which did not take into account the profile and objectives of each investor;
- Maintain high investor protection standards and provide retail investors with all the relevant information so that they can take informed decisions.
Now that the Council has adopted its position, it is ready to enter negotiations with the European Parliament in order to agree on a final version of the text, once the latter has set its position.
The Commission presented its Capital Markets Union package, including the review of the ELTIF regulation, on 25 November 2021.