Fund managers seeking to launch new Eltif 2.0 funds can do so even though the crucial ‘level 2 RTS’ standards have yet to be finalised, according to Marco Zwick, the CSSF director in charge of supervising investment funds said while speaking at an investment conference in Luxembourg on Tuesday. He was very optimistic that the remaining obstacles to the Eltif 2.0 will be cleared up.
“The good news is that a lot of discussions are going on, it’s going to be sorted out,” he said. “I believe that Eltif 2 will will be successful, honestly, there is no reason why it shouldn’t,” he said.
Zwick agreed with most observers that Eltif 2.0 is a big step forward for investment managers. But he also saw that the new version is “making it easier to get into those funds also for retail investors.” He pointed out that this fits nicely with the goals of the Capital Markets Union.
A major upgrade to the EU regime for Eltif funds, European Long-Term Investment Funds, took effect in January, even though the supervisory standards remains to be finalised. The funds enable retail investors also to invest in private markets. The European Commission made clear last week it supports relatively flexible standards, and the market now awaiting final adoption of an amended RTS. Luxembourg currently is home to about 65 Eltifs, on a EU total of 101.
Long-term projects
“We see that Eltifs per se are quite attractive also in terms of raising the money and investing it in long-term projects,” Zwick said, conceding that in doing so, “it raises questions about liquidity management again.”
While participating fully in discussions about how to deal with this, he found it important to remind the audience of its merits.
“We have to bear in mind that we have here again, like a UCITS, a product with a European passport,” he said. “I think that’s very powerful, very important to note.”
Lack of level 2 RTS
Referring to the RTS, he said that “a lot of people see a lot of issues with Eltif 2.0 because of the perceived lack of the level 2 regulation.” He allowed that “this, of course, slows down a little bit appetite on the asset management time for the time being.”
Zwick was discussing three “important questions” that the CSSF has received from the market. One asked whether, in the absence of the Level 2 RTS standards, the CSSF still authorises all types of Eltifs.
Not all same
“The answer is yes,” he said. “We also recognise that not all Eltifs are affected in the same way,” he said. “If you have closed-ended Eltifs, it’s of course a different story than to open-ended Eltifs.” he continued.
For open-ended Eltifs, he said, “it depends on the frequency of the valuations, of the redemptions of the subscription.”
Liquidity issue
“I think this all is of course a discussion which we do not forget about at all, as I mentioned, is ultimately about liquidity risk management,” he said, speaking at the 2024 Alfi Global Asset Management Conference in Kirchberg.
Another question the CSSF hears, he said, was “What will be the consequences for already approved Eltifs when the RTS are actually coming in?”
“The first good news is they will not lose their authorisation, but I think we would not have expected them to lose their authorisation.”
Free exit right
Another question the regulator hears is to what extent the Level 2 RTS constitute a “new investment policy” that could trigger a “free exit right for investors.”
Zwick stated that while “the level 2 (rules) will give a lot of clarifications on the operation of Eltifs but it will not change the investment objectives.”
“So if you stick to the initial investment objective and just implement the RTS I think then we would not see that as a change which will trigger eventually a free exit right for investors,” he added.
Some impacts
Zwick cautioned that while he had positive answers for some of the questions, fund promotors aren’t out of the water yet.
Full answers about Eltif 2.0 await “the final text of the RTS, but it cannot be excluded that there will be some impacts,” Zwick said.
He continued his optimistic theme. “But that’s something which should not keep us away from issuing Eltifs,” he said. “It’s just a normal process of adaptation.”
Approvals can be swift
Another set of questions CSSF hears, which should be music to Eltif supporters’ ears, concerns its ability to rapidly approve new Eltifs. “We have the teams really to treat these requests very quickly.”
Zwick explained that his department has designed some standard formats which allow them to process Eltif authorisations very quickly. “We have made very substantial reductions in time because of the most structured way how we get the applications.”
The regulator was proud of Luxembourg’s historic involvement with Eltifs, mentioning that it had been a strong user of the less successful Eltif version 1 legislation. “We can quite proudly say that we had over 60% of the market on Eltif 1.0.”
Further reading on Investment Officer Luxembourg:
- CSSF ready to conditionally approve Eltif 2.0 applications
- Eltif 2.0 launch: Tension builds in Luxembourg
- Eltif 2.0 supervisory standards could come only late February