Some 40 new Eltif funds, enabling European retail investors to put their money in private markets, are understood to be in the pipeline, from a current total of 101 such funds available to investors in Europe, delegates at a Luxembourg conference have been told.
Members of the Alfi working group focussed on the Eltif 2.0 legislation were visibly delighted to be bringing positive news to the attendees of the group’s investment conference on Wednesday. Alfi is Luxembourg’s trade association bringing together the fund and asset management sector.
Despite being in a holding phase whilst the European Securities and Markets Authority (Esma) decides how to respond to the European Commission’s critique of its draft regulatory and technical standards, the duo presenting appeared to think it is going the way they like.
‘Right direction’
“The latest draft we have seen early last week is a very important step into the right direction and many of the industry concerns, also the ones we at Alfi had shared with the EU Commission have been taken into account,” said Silke Bernard, a partner at Linklater’s law firm, who chairs Alfi’s Eltif Working Group.
A major upgrade to the EU’s Eltif fund legal framework took effect in January, but critical regulatory and technical standards have yet to be finalised. These European long-term investment funds are meant to allow investors, including retail investors, to invest in private markets. The European Commission made clear earlier this month it supports relatively flexible standards and the market is now awaiting the final adoption of an amended RTS.
The relatively large, for the late afternoon timing, audience of finance professionals was paying close attention to what Bernard and Gutton had to say. Perhaps the clearest indicator of the level of interest in taking advantage of the Eltif legislation is that, in the end, an incredible three detailed questions were asked. Most Alfi panels are lucky to get one such question.
CSSF collaboration
Emmanuel Gutton, Alfi’s deputy CEO and general counsel, made his organisation’s role in the process clear: “Before we dive into the discussion, I’d like to share that this interview has been prepared in collaboration with the CSSF (Luxembourg’s financial regulator).” He continued, saying “They have kindly agreed to provide us with explicit insights into some of the questions we have today.”
The Alfi working group has also kept in close touch with the European Commission. “We had a call this week with the EU Commission who very firmly told us the latest draft is what they want.“
Progress at rolling out new Eltifs is clearly ongoing, according to statistics presented during the session. In 2020, when the review of the Eltif regulating got underway, there were 28 Eltifs, 15 of which were domiciled in Luxembourg. Only two years later, when the commission’s inter-institutional legislative process began, there were 74 Eltifs, with 43 domiciled in Luxembourg.
Grand Duchy in lead
By February 2024, there were 101 Eltifs in Europe, with 65 in Luxembourg, giving the grand duchy a 65% market share.
“I can also share that in January of this year, almost 10 Eltifs were created,” said Gutton, speaking late in the afternoon of day two of the ALFI Global Asset Management Conference.
The presentation was overshadowed by an earlier discussion by CSSF director Marco Zwick of some of the questions being asked by the market.
40 on the way
Gutton repeated the “rumour” that there are some 40 new Eltifs “in the pipe”. Zwick had earlier made clear that the CSSF has the capacity.
“The CSSF has very much geared up their teams, have trained their teams, they have built a tonne of working groups to make sure that they are speaking with one voice when it comes to Eltifs,” said Bernard.
“We have seen approval times going down massively over the past few months, which is good news,” commented Bernard.
Decades of experience
Bernard wanted to discuss the CSSF’s readiness to deal with Eltif 2.0. The “new features of Eltifs open-ended, semi-liquid, fund-of-fund and so on, these are structures the CSSF is very well aware of. It has decades of experience with semi-liquid funds, including for retail investors.”
Even on a legislative basis, she said, the country is prepared and has an advantage. “The Luxembourg fund laws have the tools to approve these structures, unlike some other EU countries who have never seen semi-liquid retail funds.”
“We have that advantage and the CSSF is very aware of that.”
No matching Irish claim
There was discussion of whether Luxembourg could match Ireland’s claim to be able to approve Eltif funds in less than 24 hours.
“The Luxembourg position and the CSSF position has always been that the right quality of supervision and investor protection should be ensured,” said Bernard.
However, she underlined that she’d seen “a 50% reduction improvement over Christmas” in the CSSF’s processing time.
Form plays key role
“And that was on an open-ended, fund-of-fund Eltif under the new features. So, very encouraging.”
Key to the faster processing of Eltif applications is the new application form the CSSF has designed for Eltifs. Bernard described it as “pretty detailed,” adding that it “shifts some of the workload from ex-post discussions with the CSSF to upfront filling-in of that form.”
The question of whether the process of finalising the Eltif rules could leave early adopters holding the bag seemed to perplex many participants. However, according to Bernard, “under the new draft we’ve seen last week, it seems that required mandatory changes to all the existing Luxembourg Eltifs would be extremely limited, and very few products will need to adjust because most of them will already be aligned.”