Irish Funds (IF), the representative body of the Irish funds industry, has published its response to ESMA’s Consultation Paper on draft Regulatory Technical Standards (RTS) under the ELTIF Regulation.
Many of the IF comments focus on the need to avoid defining extensive or exhaustive categories, lists or criteria in the RTS, given the diverse nature of long term illiquid investment projects and the need for investment managers to be able to tailor policies appropriately to the specific project.
IF is of the view that it is not useful to look to IFRS or US GAAP for a definition of hedging from a risk management perspective. Instead, when specifying criteria for establishing the circumstances where derivative contracts solely serve the purpose of hedging, both the RTS issued under EMIR and CESR’s guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS should be considered.
IF also contends that the RTS should not be prescriptive in the risks that the ELTIF manager may seek to hedge but should instead seek to prescribe conditions which the ELTIF must meet in order for hedging to be permissible.
Life of the ELTIF
IF agrees that the initial life of the ELTIF should be determined by reference to the assets with the longest maturity life-cycle known at the time of the creation of the ELTIF. However, the RTS should not be limiting in terms of the circumstances in which a temporary extension may be made, as it is not possible to envisage an exhaustive list of the individual circumstances that might arise. Instead, the RTS should clarify that the directors of the ELTIF may extend the life of the ELTIF at any point during the life of the ELTIF, subject to approval by shareholders or upon notice to shareholders as required by the rules or instruments of incorporation of the ELTIF.
Valuation of ELTIF assets
IF does not agree with the proposal to set out a minimum standard distinct from AIFMD on elements to be taken into account for the valuation of assets to be divested. Managers of ELTIFs should be able to rely on existing valuation rules set out under AIFMD and the accompanying AIFMD Level 2 framework.
Calculation methodologies and presentation formats of costs
IF agrees that the preferred approach would be for the ELTIF RTS to be materially similar to the cost disclosures provided for by the UCITS Directive and by CESR in their guidelines for calculation methodology. It is IF’s opinion that a harmonised costs disclosure methodology not only promotes transparency but enables investors to make a comparison between products.
Facilities for retail investors
IF proposes that the RTS clarify that facilities for retail investors may be provided via technology rather than requiring a physical presence in the Member States where the ELTIF is distributed to retail investors.