On 24 August, AIMA and the ACC submitted their response to the European Securities and Markets Authority’s (ESMA) consultation on the draft RTS for the revised ELTIF Regulation (ELTIF 2.0).  In the comment letter, AIMA and the ACC supported ESMA’s broad approach, but pointed out key issues in the draft, particularly surrounding ESMA’s unnecessarily prescriptive approach in some points.  The response highlighted:

• An overly rigid or prescriptive level two framework risks undermining the positive reforms introduced to the ELTIF Regulation.
• Some element of standardisation that retains flexibility may support investor’s understanding of the ELTIF and support efficient and consistent supervision of ELTIFs.
• Minimum holding periods:  The criteria suggested by ESMA to determine a minimum holding period are relevant and proportionate, but ESMA’s proposal to introduce a minimum time-based requirement of ‘X’ years is overly prescriptive and does not match the wide variety of strategies that the new ELTIF vehicle can accommodate.  ELTIF managers should be permitted to determine the minimum holding periods based on the investment strategy of the ELTIF and how this interacts with other LMT that they employ.
• Notice periods for redemptions:  ESMA’s proposed two options are not necessary to ensure ELTIFs have robust liquidity management practices in place.  Should it be deemed necessary to introduce a minimum notice period, we believe that this should be accompanied by a provision permitting an alternative notice period in instances where the ELTIF manager can provide a justification taking into account the nature of the individual ELTIF.
• Redemption frequency:  ESMA’s approach towards having a quarterly maximum frequency of redemption is acceptable as long as ESMA includes the possibility for exceptions from this requirement where ELTIF managers justify more frequent redemptions taking into account the individual characteristics of the ELTIF.
• Anti-dilution mechanisms:  ESMA’s mandate that ELTIF managers employ at least one anti-dilution measure is not appropriate.  Such an approach would be inconsistent with the recent revisions to the AIFMD which recognised that liquidity risk management was primarily the responsibility of the AIFM and that prescribed use of LMT (including anti-dilution mechanisms) was inappropriate and potentially counter-productive.
• Cost disclosure:   ESMA’s approach to align ELTIF cost disclosure with other existing disclosure frameworks is broadly welcomed and positive, though such frameworks were designed for listed assets and there will be instances where these frameworks do not accurately account for or represent costs that accrue when investing in ELTIF eligible assets. ESMA should maintain a dialogue with the industry on how such costs should be disclosed to provide investors with the most accurate information.  

For further information, please contact Guillermo Pérez Molina, Private Credit Associate.