Today new legislation creating a new type of investment fund vehicle, the European Long Term Investment Fund ("ELTIF"), comes into practical effect across the EU. ELTIFs are intended to facilitate investment by professional and retail investors in private equity, infrastructure projects, aircraft, real assets and other illiquid assets, which up until now have tended to be the preserve of institutional investors. The Commission hopes this new investment will stimulate growth and create jobs in these areas.
The key benefits of ELTIF status are, first, the existence of a cross-border marketing passport to enable their marketing to investors (including retail investors) across the EU without having to rely on national private placement regimes and, second, the fact that ELTIFs' applications for funding from the European Investment Bank will be prioritised and streamlined.
ELTIF status is only available to EU domiciled alternative investment funds ("AIF") (or a compartment of such an AIF) managed by an authorised EU alternative investment fund manager ("AIFM"). To be authorised as an ELTIF, both the ELTIF and its AIFM will need to apply (separately where the AIF has an external AIFM) for approval from the ELTIF's home competent authority.
Key features of ELTIFs are as follows:
- at least 70% of an ELTIF's capital must be invested in "eligible investment assets", being broadly equity and debt instruments issued by, or loans granted to, non-financial, unlisted companies of lasting duration, and also real assets with a value of at least Eur 10 million (provided that the asset itself is not worth more than 10% of the ELTIFs capital);
- ELTIFs must invest in accordance with certain specified diversification rules restricting (without limitation) the amount that can be invested in the capital of individual eligible undertakings or real assets;
- ELTIFs may not invest more than 10% of its capital in units or shares of one or several other ELTIFs, European Venture Capital Funds (EuVECAs) and European Social Entrepreneurship Funds (EuSEFs) provided that those ELTIFs, EuVECAs and EuSEFs have not themselves invested more than 10% of their capital in ELTIFs;
- ELTIFs may not borrow an amount worth more than 30% of its capital;
- investors in ELTIFs will have limited redemption rights and, in particular, no redemption may occur before the earlier of 5 years from the date of subscription and half the life of the ELTIF and the amount of redemptions granted within a given period are restricted to a percentage of the ELTIF's more liquid, UCITS-eligible assets (if any); and
- side letter agreements are not permitted – all investors must benefit from equal treatment and no preferential treatment or specific economic benefits may be granted to investors.
ELTIFs are subject to various product and transparency requirements (over and above the compliance of their AIFMs with the Alternative Investment Fund Managers Directive) including publication of a prospectus. However, the ELTIF is likely to become an important future fund type in its own right, alongside AIFs and UCITS. Its introduction can be considered an early measure under the Commission's proposals for the Capital Markets Union.