The European Fund and Asset Management Association (EFAMA) has shared its recommendations to the European Commission on measures to be taken to improve the European Long-Term Investment Fund (ELTIF) regime.
Very few ELTIFs were launched by professional investment managers since the Regulation became applicable in December 2015. Only around 28 ELTIFs have been established, with a low asset base (below EUR2 billion). From that perspective, the ELTIF Regulation has failed to meet its objective of
boosting European long-term investments in the real economy.
However, EFAMA believes that the ELTIF regime – if properly adapted – can become a powerful tool to deliver on some of the Capital Markets Union’s (CMU) objectives and represent an attractive vehicle for investors in a low-for-long interest rate environment.
EFAMA recommends the following key changes to the current regime:
• Turn ELTIF into an open-end structure alongside the existing closed-end one, by removing current limitations to its life cycle and by introducing appropriate redemption terms and include adequate liquidity management tools.
• Broaden the scope of the current eligible asset provision to include other types of funds, besides ELTIFs, EuVECAs and EuSEFs, as well as non-listed financial start-up companies.
• Lower the current EUR10 million threshold for investments in “real assets”, thereby broadening choices for managers to consider smaller investment projects.
• Remove quantitative limits (ie, EUR500.000, 10 per cent of the investable portfolio and a minimum of EUR10.000) and allow investments into ELTIFs as from EUR1.000 to reduce “supply-side” constraints.
• Guarantee the tax neutrality of the ELTIF structure to make it a worthwhile investment tool.
Federico Cupelli, senior regulatory policy adviser at EFAMA, says: “Profound changes are necessary to make ELTIFs an EU product of choice and help deliver on some of the CMU’s objectives. These include promoting more participation in less-liquid, real asset markets, as well as allowing both institutions and individuals to invest a part of their wealth over the long-term and diversify their exposure into private markets. In this regard, we advocate a recalibration of the Regulation’s asset eligibility requirements, minimum investment amounts and adequate tax incentives.”