The redesigned European Long-Term Investment Funds (“ELTIF“) framework, commonly referred to as ‘ELTIF 2.0,’ represents a significant step forward in the EU’s efforts to facilitate long-term investments. By broadening the investment universe and removing barriers for professional investors, the new framework also simplifies access for retail investors while maintaining strong investor protection. The primary objective of the ELTIF 2.0 regime is to channel more financing into small and medium-sized enterprises (“SMEs”) and long-term projects, making the framework more attractive and accessible.

Key developments:

1. EU Commission’s amendments to ESMA’s draft Regulatory Technical Standards (RTS)

In March 2024, the EU Commission issued comments on the draft RTS prepared by the European Securities and Markets Authority (ESMA). The Commission’s feedback emphasized the need for flexibility in the ELTIF 2.0 regime, particularly concerning portfolio composition and liquidity requirements. Key proposed amendments include:

  • Dropping the minimum notice period for redemption: The EU Commission suggested removing the 12-month minimum notice period for redemptions to enhance flexibility for open-ended ELTIFs.
  • Proportionality in liquidity requirements: Concerns were raised that excessive liquidity requirements could deter the use of ELTIFs. The Commission proposed a more tailored approach, considering the individual characteristics of different ELTIFs and existing market practices.
  • Alignment with AIFMD framework: The EU Commission recommended aligning the rules for liquidity management tools and cost disclosure with the Alternative Investment Fund Managers Directive (“AIFMD”) framework, rather than imposing ELTIF-specific requirements.

2. Adoption of the ELTIF 2.0 regulatory Technical Standards

On 19 July 2024, following extensive negotiations, the EU Commission adopted the final RTS for the ELTIF 2.0 regime. These standards specify the requirements for an ELTIF’s redemption policy, liquidity management tools, and cost disclosure elements. The adoption of these RTS is a crucial step toward implementing the ELTIF 2.0 framework, which aims to balance market practices with investor protection.

  • Redemption and liquidity management: The RTS outline methods for determining the minimum percentage of liquid assets that ELTIFs must maintain to satisfy redemptions and set out the circumstances for matching transfer requests of units or shares.
  • Cost disclosure: The RTS also address the need for transparent cost disclosure, aligning with existing regulations under PRIIPs, MiFID II, and AIFMD.

The adopted RTS are now subject to a three-month scrutiny period by the EU Parliament and the Council of the EU. If no objections are raised, the RTS are expected to enter into force in Q4 2024.

With the adoption of the ELTIF 2.0 RTS, market participants should prepare for the upcoming regulatory changes. We recommend closely monitoring the EU co-legislators’ review process and staying informed about any potential adjustments before the expected implementation in late 2024.

For further information on how these developments may impact your investments or to discuss the implications of the ELTIF 2.0 regime, please feel free to contact our team.

The ELTIF 2.0 framework marks a pivotal evolution in long-term investment regulation within the EU. By streamlining requirements and expanding opportunities, it seeks to drive greater investment into SMEs and long-term projects. As always, we are here to help you navigate these changes and optimize your investment strategies in line with the new regulatory landscape.

Feel free to reach out to our investment management team if you have any questions.