An agreement struck this week by the negotiators of the European Parliament and the Czech Presidency of the EU Council aims to make investments in European long-term investment funds (ELTIF) more attractive.
ELTIFs are funds that focus on investing in a variety of alternative asset classes like infrastructure or SMEs that are not listed on the stock market and are thus usually difficult to invest in.
The ELTIF regulation has been in place since 2015, laying out detailed rules on the assets, diversification, leverage limits, and marketing of a fund, as well as determining who could invest in it.
However, not much money ever flowed into the European long-term investment funds. According to the law firm Linklaters, there are currently only 68 ELTIFs in the EU, with €2.4 billion of total assets under management.
“This category of funds is at present largely unknown due to obstacles in its regulatory framework which we have today agreed to remove,” said Czech Finance Minister Zbyněk Stanjura, who led the negotiations with the Parliament on behalf of the member states.
Considering that the Commission had presented its proposal for the reformed rules less than a year ago, the legislative process on this issue was rather fast.
The revision provides fund managers with more flexibility in the composition of the portfolio and expands the scope of eligible assets. For example, ELTIFs can now also invest in fintech companies dealing with digital financial services.
“The revision will make it easier for long-term fund managers to set up ELTIF structures,” said Eric de Montgolfier, CEO of Invest Europe, an association of investment firms.
Moreover, the reformed ELTIF regulation will make it easier for retail investors to invest in ELTIFs by removing some barriers to entry, which was welcomed by the Parliament’s rapporteur on the file, Michiel Hoogeveen of the right-wing European Conservatives and Reformists (ECR).
“Importantly, neither the Council nor the Parliament opposed the removal of unnecessary barriers,” he told EURACTIV. Previously, retail investors with financial portfolios below €500,000 could not invest more than 10% of their portfolio in an ELTIF and needed to invest at least €10’000.
In a further move to support the pick-up of ELTIFs, they will now be open to fund-of-funds structures, thus increasing the scope of possible investors for the funds.
“Particularly the deal on the thresholds and the possibility for full fund-of-funds structures should make a tangible difference to accelerate the uptake of ELTIFs,” MEP Hoogeveen said.
According to Invest Europe’s de Montgolfier, “this will be at the benefit of both retail investors looking to invest capital in long-term projects and the companies that need such capital to grow and contribute to the sustainable and digital transitions”.
The ELTIF reform was part of the Capital Markets Union package, with which the Commission tries to further integrate the EU’s capital market, and is seen as an important step in efforts to provide enough growth capital for EU companies.
[Edited by Zoran Radosavljevic]