The European Commission is contemplating an alternative approach to adopting the EU’s regulatory and technical standards for the forthcoming generation of European Long-Term Investment Funds under the new Eltif 2.0 regulation. According to this plan, the current draft standards would need amending, enabling the Commission to adopt them without substantial delays.
The Commission is presently scrutinising the draft standards, known as the ‘Level 2 RTS’, proposed by the European Securities and Markets Authority, Esma, just prior to Christmas. Sources acquainted with the discussions have indicated the Commission’s hesitance to reject the draft RTS, as such a rejection would precipitate a new delay spanning several months.
In lieu of this, the Commission is preparing for direct negotiations with Paris-based Esma. A person involved in the discussions, who wished to remain anonymous, mentioned that the EU’s executive body is planning to collaborate with Esma to modify its draft, thereby facilitating a prompt adoption of the RTS.
Formally, the Commission has a three-month window, concluding on 19 March, to adopt, amend, or discard the draft RTS. This period may be extended by an additional month. However, the industry, particularly asset managers, is reportedly poised to launch numerous new Eltif funds following the enactment of the updated regulation on 10 January. Nevertheless, these launches must be deferred as long as there is no definitive agreement on the RTS.
A spokesperson for the Commission declined to comment on the specific details of the discussion and reiterated their expectation for clarity on the RTS to emerge “in the coming weeks”. Meanwhile, a spokesperson for Esma conveyed to Investment Officer that, formally, the proposal remains with the Commission.
Uniform framework
The standards will provide a uniform EU framework under which national financial regulators such as AMF in France, Bafin in Germany and CSSF in Luxembourg can supervise the new Eltif funds.
The draft RTS presented by Esma on 19 December has received mixed reviews from the industry. Brussels-based fund sector group Efama has urged the European Commission to make sure that the “correct” standards are adopted and asked it to reconsider some of the more damaging proposals to ensure the future success of the Eltif product.
With Eltifs, private investors will be able to invest directly in alternative investment markets, a domain that up to now was almost exclusively accessible only for institutional and HNWI investors. Discussions over the regulatory standards among EU regulators in recent months have sought to ensure that investor interests are properly addressed. Under the draft proposal, asset managers would have to introduce a mandatory redemption period of 12 months so that investors can unwind their holdings before the fund reaches the end of its long-term life, which typically is 8 to 10 years.
More diverse funding landscape?
Policymakers also updated the Eltif regime with a view towards creating a more diverse financing landscape for European business, especially SMEs. Various industry representatives have made clear that they do not believe that the Eltif 2.0 regime will lead to a significant market if investors in these funds are made subject to a system that includes such a mandatory notice period of 12 months. The current draft RTS includes a table with exemptions and shorter redemption periods for funds that hold a bigger part of their investments in more liquid assets, such as listed, public funds.
Luxembourg is regarded as Europe’s main domicile for Eltifs. The funds are required to be managed by authorised investment fund managers, or AIFMs. Luxembourg is home to about 250 of these AIFMs. BlackRock has registered several Luxembourg Eltifs that it markets in 15 countries. Partners Group, Pictet, Amundi, Neuberger Berman, Mirova, Schroders, and Goldman Sachs have also launched Eltifs targeting investors in multiple countries.