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ELTIFR Reform - March 2023

Be prepared for the revival of the ELTIF

Introduced in 2015, the ELTIF framework has never met the intended success, driven by restrictive features making it difficult for retail investors to access ELTIFs. The modernisation of the ELTIF framework may boost the effectiveness and attractiveness of ELTIFs and make them the new sought-after investment vehicle. To read the full text, please click here.

Content

  1. Investment rules
  2. Liquidity & redemptions
  3. Marketing to professional and retail investors
  4. Transparency
  5. Miscellaneous
  6. Entry into force & grandfathering provisions

Authors

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Aurélien Hollard
Aurélien Hollard
Partner | Avocat à la Cour
Luxembourg
Benjamin Bada
Benjamin Bada
Partner | Avocat à la Cour
Luxembourg
Harrison Dans
Harrison Dans
Counsel | Avocat à la Cour
Luxembourg
Julien Robert
Julien Robert
Knowledge Lawyer – Senior Associate | Avocat à la Cour
Luxembourg

Expertise

Investment Funds

Investment rules

 Current ELTIF regimeELTIFR reform
Master-feeder structureNot permittedAllowed as long at the master remains an ELTIF
Fund-of-funds strategyMaximum limit on investments in funds other than ELTIFs and UCITs of 20%Maximum limit of 100%, allowing fund-of-funds strategies
Real assets“real asset” means an asset that has value due to its substance and properties and may provide returns, including infrastructure and other assets that give rise to economic or social benefit, such as education, counselling, research and development, and including commercial property or housing only where they are integral to, or an ancillary element of, a long-term investment project that contributes to the Union objective of smart, sustainable and inclusive growth“real asset” means an asset that has an intrinsic value due to its substance and properties
Minimum threshold of eligible assets

70%

Individual diversification limit of 10%

55%

Individual diversification limit of 20%

Minimum value of real assetsEUR 10,000,000No longer applicable
Qualifying portfolio undertakingNo financial undertakingEnabling of investments in any financial undertakings younger than 5 years
Maximum capitalisation thresholdEUR 500,000,000EUR 1,500,000,000
Green bondsNot permittedGreen bonds are eligible investments
 
Minority co-investment opportunitiesOnly via majority-owned subsidiariesPossibility to conduct minority co-investment opportunities
Simple, transparent, and standardised securitisations (STS)Not permitted

 		Possibility to invest in STS where the underlying assets consist of long-term exposures
Investment in third countriesRequirement to have a cooperative agreement between the home MS and such country ensuring the effective exchange of information in tax mattersSuch requirement has been removed
Concentration rulesELTIF may not acquire more than 25% of the units/shares of a single ELTIF, EuVECA or EuSEF

ELTIF may not acquire more than 30% of the units/shares of a single ELTIF, EuVECA, EuSEF, UCITS or AIF managed by an EU AIFM

Does not apply if ELTIF is marketed solely to professional investors

 

Liquidity & Redemptions

Open-ended structureOnly close-ended ELTIFsPossibility to have redemptions during the life of the ELTIF under specific conditions (e.g. minimum holding period, detailed redemption policy)
Liquidity management tools Not availablePossibility to use liquidity management tools to avoid liquidity mismatches
Borrowing of cash / Leverage
An ELTIF may borrow cash if it represents no more than 30% of the value of the capital of the ELTIF 
 


An ELTIF may borrow cash if it represents:

no more than 50% of the NAV of the ELTIF marketed to retail investors 
OR
no more than 100% of the NAV of the ELTIF if solely marketed to professional investors
 

Secondary tradingNot permittedEarly exit should be possible if the ELTIF manager has put in place a policy for matching potential investors and exit requests

 

Marketing to professional and retail investors

Suitability testSuitability test in accordance with Art. 28(1) ELTIFR

Suitability test in accordance with Art. 25 Directive 2014/65/EU (MiFID II)

Explicit consent of the concerned retail investor to be obtained if negative result before proceeding with the transaction

Only a single written alert to retail investors that the product might not be suitable for those who are unable to sustain a long-term and illiquid commitment if the life of ELTIF exceeds 10 years

Eligible retail investorsIf the financial instrument portfolio of a retail investor does not exceed EUR 500,000, the ELTIF manager/distributor shall ensure that he/she does not invest more than 10% of its portfolio and that the initial amount investment in one or more ELTIF(s) is EUR 10,000

No minimum financial portfolio 

No minimum investment amount

Local facilitiesObligation to set up local facilities in each MS where they intend to market ELTIFsNo longer applicable
PRIIPSObligation to publish a key information document (KID) where the ELTIF is marketed to retail investors Obligation to publish a key information document (KID) where the ELTIF is marketed to retail investors

 

Transparency

ProspectusObligation to publish a prospectus with minimum content requirementsObligation to publish a prospectus with minimum content requirements
Public registerESMA shall keep a central public register identifying each ELTIF authorised under the ELTIFRPrecise list of information to be included on each ELTIF in the central public register

 

Miscellaneous

Capital/NAV“capital” means aggregate capital contributions and uncalled committed capital, calculated on the basis of amounts investible after deduction of all fees, charges and expenses that are directly or indirectly borne by investors“net asset value” means the net value of the assets of an ELTIF calculated as the total value of its assets minus the total value of its liabilities
AuthorisationAuthorisation as an ELTIF and approval of ELTIF managers (ELTIF top-up)Authorisation as an ELTIF
Luxembourg vehicles eligible for ELTIF label

Well-informed investors only: SIF, SICAR, RAIF

All investors: SCSp/SCS, Part II UCI

Well-informed investors only: SIF, SICAR, RAIF

All investors: SCSp/SCS, Part II UCI

 

Entry into force & grandfathering provisions

ApplicationThe revised ELTIFR shall start applying as from 10 January 2024.
Grandfathering period

ELTIFs authorised in accordance and complying with the provisions of the ELTIFR applicable before the date of application of the revised version shall be deemed to comply with the ELTIFR until 5 years after the date of application of the revised version

Already authorised ELTIFs who do not raise additional capital shall be deemed to comply

Opt-in regimeELTIFs authorised before the date of application may choose to be subject to the new regime, provided that the competent authority of the ELTIF is notified thereof
Publication
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