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.
Investment rules
| Current ELTIF regime | ELTIFR reform | |
|---|---|---|
| Master-feeder structure | Not permitted | Allowed as long at the master remains an ELTIF |
| Fund-of-funds strategy | Maximum 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| Minimum value of real assets | EUR 10,000,000 | No longer applicable |
| Qualifying portfolio undertaking | No financial undertaking | Enabling of investments in any financial undertakings younger than 5 years |
| Maximum capitalisation threshold | EUR 500,000,000 | EUR 1,500,000,000 |
| Green bonds | Not permitted | Green bonds are eligible investments |
| Minority co-investment opportunities | Only via majority-owned subsidiaries | Possibility 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 countries | Requirement to have a cooperative agreement between the home MS and such country ensuring the effective exchange of information in tax matters | Such requirement has been removed |
| Concentration rules | ELTIF 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 structure | Only close-ended ELTIFs | Possibility to have redemptions during the life of the ELTIF under specific conditions (e.g. minimum holding period, detailed redemption policy) |
|---|---|---|
| Liquidity management tools | Not available | Possibility 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 |
no more than 50% of the NAV of the ELTIF marketed to retail investors |
| Secondary trading | Not permitted | Early 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 test | Suitability 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 investors | If 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 facilities | Obligation to set up local facilities in each MS where they intend to market ELTIFs | No longer applicable |
| PRIIPS | Obligation 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
| Prospectus | Obligation to publish a prospectus with minimum content requirements | Obligation to publish a prospectus with minimum content requirements |
|---|---|---|
| Public register | ESMA shall keep a central public register identifying each ELTIF authorised under the ELTIFR | Precise 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 |
|---|---|---|
| Authorisation | Authorisation 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
| Application | The 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 regime | ELTIFs 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 |
