EFAMA firmly supports the Commission’s proposed amend of the ELTIF Regulation, in line with its recently revamped “new” CMU.
Action Plan, as per its September 2020 Communication. Designed as a “hybrid” solution between the EU AIFMD regime for alternative investment managers and the retail vocation of the UCITS one, complete with an EU passport to facilitate its distribution within the Single Market, launches of ELTIFs by professional investment managers have been very few since the effective application of the Regulation’s in December 2015. In this respect, the take-up of the ELTIF regime within the investor community has fallen short of its intended purpose.
Against the backdrop of a more prolonged low interest rate environment, likely to penalise returns in both public debt and equity markets, coupled with the need to promote a greater equity and investment culture among ordinary European savers, EFAMA believes that the ELTIF regime – where appropriately adapted – may helpfully deliver on some of the Capital Markets Union (CMU) objectives.
Deep changes are however necessary to transform the current regime in view of making ELTIFs an EU product of choice, promoting more participation in less-liquid, real asset markets, allowing both institutions and individuals to invest a part of their wealth over the long-term and diversify their exposure away from public markets. In this regard, we advocate a recalibration of the Regulation’s asset eligibility requirements, minimum investment amounts, accompanied by adequate tax incentives, inter alia.
More specifically, beginning with the present “supply-side” constraints for the ELTIF product, the following changes would be welcome:
- Turn the ELTIF into an “evergreen” structure alongside the existing closed-end one by removing current limitations to its life and by introducing appropriate redemption terms, complete with 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;
- Consider lowering the current €10 million threshold for investments in “real assets”, thereby broadening choices for managers to consider smaller investment projects;
- Redefine the notion of “qualifying portfolio undertakings” to include financial undertakings, as for instance, technologically-enabled services offered by a host of start-up companies, in line with the commission Fintech Action Plan);
- Raise the current maximum €500 million market capitalisation threshold defining “qualifying portfolio undertakings” to at least €2 billion; and
- Allow ELTIF managers to co-invest, or invest indirectly, in any of the ELTIF’s underlying projects, thereby realising important synergies both in terms of fundraising and improving the terms for the underlying investment to the advantage of the entire ELTIF.
In relation to the “supply-side” constraints, the following amendments would be equally desirable:
- Amend the retail distribution-specific provisions of the Regulation in light of clear evidence on current Member State product distribution and marketing provisions, understood to hinder the distribution by advisers of the ELTIF product;
- Ensure an adequate alignment of the ELTIF’s retail distribution provisions with the resulting target market definitions stemming from the review of MiFID II/MiFIR and PRIIPs;
- Remove the present quantitative limits (i.e. €500.000, 10% of the investable portfolio and a minimum of €10.000) and allow investments into ELTIFs (either directly or through an insurance/pension wrapper) as from €1.000.
Lastly, from a taxation perspective, the following amendments should be considered:
- Guarantee an ELTIF structure’s tax-neutrality; and
- Introduce minor amendments on the requirements with respect to the definition of “qualifying portfolio undertaking”.