The European Commission has proposed a new investment fund framework designed for institutional and retail investors who want to put money into companies and projects for the long term. These private European Long-Term Investment Funds (ELTIFs) would only invest in businesses that need money to be committed to them for long periods of time.
To qualify as ELTIFs, funds would have to meet a set of common rules, including that they:
- Must only be offered by managers who are authorised under AIFMD, and are therefore subject to requirements such as the obligation to have a depositary to safe-keep assets
- Only invest in certain types of assets, and invest at least 70% of the money in the fund in these assets
- Comply with rules on spreading assets to prevent too much money going into one asset
- Only use derivatives to manage currency risks relating to the assets they hold, and not for speculation
- Obey limits on the amount they can borrow
- Run for a specified period of time during which investors do not have the right to get their money back (which must be clearly explained to investors)
The European Commission hopes that ELTIFs will encourage retail investment in long-term financing of infrastructure, transport and sustainable energy projects. Industry reaction to the Commission’s proposal has varied. While some have given the proposal a cautious welcome, a number of asset managers have pointed to the liquidity risks surrounding such a long-term investment and that it might thus be dangerous to get retail investors involved in ELTIFs. A spokesperson for the UK IMA has stated that particular care will be needed in the way ELTIFs are described and marketed to retail investors.