Overview: 

The European Long-Term Investment Fund (ELTIF) Regulation was established in 2015 to support greater debt and equity investments in non-listed European businesses and reduce the SME finance gap.

Current work:

The Alternative Credit Council (ACC) and the Alternative Investment Management Association (AIMA) submitted a response to the European Commission’s review of the ELTIF regulatory framework.

The ACC and AIMA outlined the need for targeted reform of the ELTIF Regulation in order to encourage the growth of market-based lending across the European Union and better align with the needs of investors. The response provides detailed comments in response to the questions posed by the review.In addition, ACC and AIMA encouraged policymakers to refrain from using the ELTIF Regulation to target specific assets or operating models to avoid an overly prescriptive framework.

In response to the consultation, the European Commission released a proposal for an amended ELTIF regulation on 25. November 2021. The proposal reflects the majority of amendments requested by the ACC and other stakeholders. A summary of the proposals is available here. 

The Alternative Credit Council (ACC) and the Alternative Investment Management Association (AIMA) have drafted a response to European Commission's proposal amending the European Long-Term Investment Fund (ELTIF). 

The ACC and AIMA support the ambition shown in the proposed reforms of the European Long-Term Investment Fund (ELTIF) Regulation. These changes have the potential to unlock ELTIFs’ value proposition and deliver for EU investors and businesses alike.

In addition to the significant improvements proposed by the European Commission, the ACC and AIMA position paper proposes supplementary reforms to optimise the role of the ELTIF as part of the CMU while remaining faithful to policymakers’ broader objectives and responsibilities. Key amendments include:

• Borrowing: Allow loan-focused ELTIFs to use borrowing in the same way as other ELTIFs;
• Evergreen ELTIFs: Allow the development of open-end or ‘evergreen’ ELTIFs by disapplying the requirement to be closed-end and fixed maturity where ELTIF managers can demonstrate that they have robust liquidity risk management measures in place;
• Optional liquidity window: Lower the minimum lock-in period to two years. Do not introduce Regulatory Technical Standards and instead rely on the requirements introduced in the level 1 rules;
• Fund-of-fund structures: Remove the proposed limits on the amount of capital a retail ELTIF can invest via a fund-of-fund structure;
• Allow ELTIFs to fully benefit from master-feeder structures: Remove the provisions that prohibit the investment of an ELTIF feeder into a master AIFs other than a master ELTIF;
• Expanding the range of eligible assets: ELTIFs should be permitted to invest in all securitisations rather than just STS Securitisations;
• Central public register: Remove the requirement for an ELTIF’s rules or instruments of incorporation of the ELTIF, the annual reports, the prospectus and, where available, the Key Information Document to be made available on the ESMA central public register; and
• Implementation: Introduce appropriate grandfathering conditions for ELTIFs established prior to the implementation of proposed legislative changes.

Following the European Commissions' draft proposal, the European Parliament and Council have finalised their ELTIF compromise positions. The ACC has engaged on two key elements of the compromise agreements.

Environmentally-sustainable ELTIF

The ACC has sent a letter to the European Parliament in the context of the European Long-Term Investment Fund (ELTIF) to provide our comments pertaining to amendments put forth in the European Parliament’s second draft compromise text which would introduce a new category of an ‘environmentally sustainable’ ELTIF. 

The letter emphasises that the ACC does not believe it is appropriate to introduce specific ESG-related product requirements, labels or additional rules beyond those already required by the Sustainable Finance Disclosure Regulation (SFDR) in the context of the ELTIF. To review the full letter, please click here.

Use of borrowing by ELTIFs

The ACC, AIMA and the Bundesverband Alternative Investments e.V. (BAI) have sent a joint letter to the European Parliament and French Presidency of the European Council to highlight a critical issue with the reforms to the European Long-Term Investment Fund (ELTIF) proposed by the European Commission. 

Specifically, the letter addresses Recital 27 and Article 16(1)(b) in the Commission's proposal which prohibit ELTIFs from using borrowing to grant loans to qualifying portfolio undertakings. 

The letter argues that preventing loan-focused ELTIFs from using borrowing in this manner would not only be unjustifiably discriminatory, it will also lead to a significant degradation of loan-focused ELTIFs to extend credit to the EU economy – a key objective of the reformed ELTIF Regulation.

Upcoming actions: 

The updated ELTIF proposal will go through the trilogue process in September. The ACC and AIMA are engaging with key stakholders across the European Commission, Parliament and Council throughout the trilogue process. 

(Last updated: 14 July 2022)