The European Long-Term Investment Fund (ELTIF) regime is designed to provide long-term capital for the purpose of fostering sustainable growth and development. This article discusses the key aspects of ELTIFs, and the recent changes introduced by ELTIF 2.0 and the RTS.

What is the ELTIF regime?

An ELTIF is a type of investment fund that is authorised and operates under the ELTIF Regulation. It is designed to allow investors to invest in companies and projects that require long-term capital, also known as patient capital. This capital finances both tangible and intangible assets. To qualify as an ELTIF, an investment fund must meet certain criteria, including investing at least 55% in eligible assets, strictly limiting derivative and leverage use, being closed-ended, and having an authorised investment manager. ELTIFs must be managed and offered by an investment manager who is authorised under the AIFMD, and all ELTIFs are EU AIFs.

The ELTIF Regulation is closely connected to the Alternative Investment Fund Managers Directive (AIFMD) in that a manager of an ELTIF has to be an alternative investment fund manager (AIFM) and therefore be subject to the AIFMD. Only EU AIFs are eligible for authorisation as an ELTIF.

What type of investors can invest in an ELTIF?

ELTIFs (European Long-Term Investment Funds) are open to a variety of investors. A key change introduced by ELTIF 2.0 is that retail investors may now also invest in ELTIFs due to the removal of the prior restriction on retail investors, requiring them to invest a minimum of €10,000 in an ELTIF while not exceeding 10% of their total investments.

ELTIFs are also open to professional investors, certified sophisticated investors, self-certified sophisticated investors, certified high net worth investors and pension funds.

What are the changes introduced by ELTIF 2.0 and the RTS?

The ELTIF Regulation was amended by Regulation (EU) 2023/606, which entered into force on 9 April 2023 and has applied since 10 January 2024. Existing ELTIFs will be deemed to comply with the Amending Regulation for five years, although they can choose to be subject to the Amending Regulation by notifying a fund’s competent authority. On 25 October 2024, the Commission Delegated Regulation (EU) 2024/2759 relating to ELTIF was published in the EU’s Official Journal, containing within it regulatory technical standards (RTS).

In addition to the opening up of ELTIFs to retail investors, further changes introduced by ELTIF 2.0 and the RTS are as follows:

• ELTIFs may invest in a broader range of assets and investments. Eligible investments now include fintech companies, listed companies with less than €1.5bn market cap, green bonds, and certain STS securitisations and third-country companies, respectively. The definition of eligible real assets has been simplified, and ELTIFs may now invest in most types of real assets (excluding art and wine), with no minimum investment threshold for each asset.
• The criterion regarding the minimum investment in eligible assets by an ELTIF has changed from 70% to 55%.
• The circumstances in which the use of financial derivative instruments for hedging purposes are limited to solely serving the purpose of hedging the risks that are inherent to the investments of an ELTIF.
• The criteria to be used by ELTIF managers to determine a minimum holding period (defined in the RTS).
• The requirements to be fulfilled by an ELTIF in relation to its redemption policy and liquidity management tools, as well as the criteria to determine the percentage of liquid assets.
• The minimum content requirements to the full or partial matching of transfer requests of units or shares of an ELTIF by exiting investors and new investors. It also sets out the requirements for the determination of the execution price and the pro-ratio conditions where transfers are matched.

What are the safeguards for retail investors?

The ELTIF Regulation contains safeguards for retail investors, including equal treatment, limited liability, a two-week cancellation period, and procedures for dealing with complaints. The ELTIF Regulation also contains a passporting regime, allowing the manager of an ELTIF to market a fund into host member states if it has followed the notification process in Article 32 of the AIFMD.

How to become authorised as an ELTIF?

To become authorised, an ELTIF must apply for authorisation to its competent authority. We have significant experience working with a variety of competent authorities, such as the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, the Malta Financial Services Authority (MFSA), and the Federal Financial Supervisory Authority (BaFIN) in Germany, as well as expertise in working with the Guernesey Financial Services Commission and Swiss Financial Market Supervisory Authority (FINMA).

The application must include certain information, such as the fund rules or instruments of incorporation, the name of the proposed manager of the ELTIF, and the name of the depositary. If the ELTIF is intended to be marketed to retail investors, additional information must be provided.

This article has explored various aspects of the European Long-Term Investment Fund (ELTIF) regime, including its purpose, eligibility criteria, and the recent changes introduced by ELTIF 2.0.

If you are interested in understanding more about the ELTIF regime or need expert guidance on ELTIF fund structuring in the EU, please contact LINDEMANNLAW for professional support. Our team of World-leading lawyers is here to assist you with your specific needs and ensure that your fund structuring is both efficient and compliant with relevant regulations.