Protesting Turkish Kurds on Wednesday did not keep the European Parliament in Strasbourg from adopting the eagerly anticipated upgrade of the EU regulation for long-term investment funds, a package known as Eltif. An overwhelming majority of 492 members, or 70 percent, voted in favour.
The 109 MEPs that rejected the update of the 2015 Eltif regulation were mostly from Left and Green parties. They were disappointed to see that Eltifs no longer are required to invest exclusively in sustainable or socially responsible companies or projects.
Instead, Eltif investment managers now only have to classify the funds under the EU’s Sustainable Finance Disclosure Regulation, or SFDR. This means that sustainability reporting for Eltifs has become optional, and no longer is mandatory.
‘Deregulation’
Ironically speaking, the European Commission has booked a double success, said French Green MEP Claude Gruffat. “It has not ensured that these investments are sustainable. And it managed to block all common sense proposals; there no longer are any reporting requirements. Basically, we’re seeing deregulation, and the more deregulation there is, the less supervision there is.”
Michiel Hoogeveen, a Dutch MEP for the European conservative group ECR and the parliament’s rapporteur on the Eltif package, was nevertheless praised widely for the work done on this dossier, particularly in recent months together with the Czech EU presidency. He said Eltifs can add some 100 billion euro in financing to firms in the common market.
Hoogeveen in the IO Weekly podcast (Dutch)
“The Eltif reform has shown that the common market is open to financial innovation by building a stronger Capital Markets Union,” said Hoogeveen. “We jointly stand for the interests of our small and medium sized businesses, jobs, investors, and ultimately the prosperity and interest of our people.”
‘Dozens’ ready for launch
Mairead McGuinness, European Commissioner for financial services, said the Eltif reform can be called a success. “We have early indications from market participants that dozens of Eltfss are due to be launched in the near future,” she said.
The commissioner praised MEPs for also underlining the importance of financial literacy. “Financial literacy, I believe, has an important role to play here, because we do need to talk about knowledge about money and to make sure that citizens have the skills to invest and are aware of what’s happening.”
“For me, the big point is that we need to connect savers with investing,” McGuinness said.
The vote was delayed because Turkish protesters had loudly entered the public gallery in the parliament’s hemicycle, calling for the release of PKK militant Abdulla Ocalan. After the protesters were removed, the vote took place about three hours later than scheduled. The result made clear that the EU’s lawmakers are enthusiastic about making fund investments more accessible to retail investors across Europe.
Since 2015 Eltifs have struggled. When Hoogeveen took on his role as Eltif rapporteur at the end of 2021, Europe was home to 51 Eltifs, with collective assets of about two billion euro. The EU now has 84 Eltifs, about half of them domiciled in Luxembourg, with assets in excess of 7.5 billion europe.
‘Short-termism circle won’t be squared’
Although he voted in favour of the package, Dutch social-democrat MEP Paul Tang said he believes the Eltif package still leaves too much room for short-termism. “Eltifs are meant to incentivize a long term view and increase investments to firms and projects that need time to grow. But they’ve struggled so far,” said Tang.
“Interest in Eltifs from investors has been limited because they care about the quick wins. Eltifs by themselves will not square the circle of short termism in the financial markets.”
Major obstacles have now been removed. Eltifs can be channelled to more diverse uses, real estate infrastructure projects, SMEs, listed companies, equity and debt instrument loans and specific asset classes such as securitizations.
Eltifs now also can pursue an international investment mandate, making it possible to use them in fund-of-fund strategies. Borrowing standards are less stringent and Eltifs do not necessarily have to be closed-end, enabling early redemptions. Finally, the EU has put in place a stronger framework for the protection of retail investors.
The industry has welcomed the adoption. Industry group Efama said Eltifs can become “a complementary source of financing for the European real economy” and help access “the almost untapped retail market for longer-term real assets investments.”