Deputy Chair FECIF & Director, Foreign Affairs, ANASF.
The ELTIF: concrete help to support the EU capital markets union
ELTIFs (European Long-Term Investment Funds) are closed-end mutual funds that provide repayment of capital at maturity. They were introduced by EU Regulation 2015/760 to incentivise long-term investment in infrastructure projects, unlisted companies and in small and medium-sized enterprises that need stable financing.
They have the characteristic, on the one hand, of being investment instruments that are difficult to liquidate before maturity, as they have a low level of liquidity, and on the other hand they are able to offer an important flow of income and a capital appreciation at maturity.
ELTIFs must primarily allocate at least 70% of their assets to long-term investment risk capital, i.e. in shares or in debt, including bonds issued by European companies, with certain parameters on diversification, such as concentration in a single company or in single real activities can be no greater than 10%.
The ELTIF proposal, in addition to being of interest to institutional investors, is also aimed at both professional and retail private investors.
Despite the potential advantages of these vehicles, only a limited number of ELTIFs have been launched in Europe. To date, the ELTIF regulatory framework has not managed to bring added value to investors and even less to companies that were to supposed be the main recipients of these instruments.
Therefore, the European Commission recently launched a consultation on the revision of the ELTIF Regulation, with the aim of gathering opinions to improve the functioning of the regulatory framework and to make them become a significant vehicle for the relaunch of the European economy, as well as of the economy of individual EU countries.
FECIF’s response to the consultation underlined that the causes of the failure of these instruments to take off are many: firstly, the lack of a tax incentive for investors, to repay them for the illiquidity of the instrument, a unique tax benefit in all EU Member States, with portability of the benefit in the case of a change of national residence within the EU. Furthermore, the parameters that define the eligible investable companies could be increased, allowing investment in larger companies perhaps. In this way the managers could create new ELTIFs, producing greater choice for the investor and increasingly competitive tools.
Furthermore, the right of early repayment for retail investors should be available, conditional on events or needs, determined in the new legislation.
Of course, given the type of instrument, it is essential, as required by the initial Regulations, that advice is always provided by an experienced professional who can help investors understand the purposes and risks of this type of investment. The ongoing revisions of the MiFID II and AIFMD directives must also explicitly take into account this type of instrument, with the aim of always applying uniform legislation.
Furthermore, it would be appropriate to allow these instruments to be admitted to a secondary market, which should be facilitated, to make the instrument more attractive to investors, thus favouring any conditional reimbursement, previously mentioned. A further idea could be to provide for early repayment windows, specifying in this case any progressive penalties applied.
Will the ELTIF be able to have the importance they deserve as a medium/long-term investment within the portfolios of savers? Surely with the joint activity between the competent European and National Authorities, and important attention given to taxation enhancements, today more than ever these investment vehicles can represent a valid diversification for investors, and a necessary assistance to the real economy.