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European Long Term Investment Funds Come into Effect
AUTHOR(S): Michael Jackson, Tara Doyle, Dualta Counihan, Elizabeth Grace, Philip Lovegrove, Shay Lydon, Anne-Marie Bohan, Joe Beashel, Liam Collins
PRACTICE AREA GROUP: Asset Management and Investment Funds
As of 9 December 2015, the European long term investment fund (“ELTIF”) regime has come into effect offering the latest European fund vehicle. ELTIFs are a new regulated European fund brand designed for investing in companies and projects that need long-term capital. They offer investment for both retail and non-retail investors and are permitted to operate a cross-border EU sales passport. A primary impetus behind the introduction of ELTIFs is the creation of an alternative funding source for long term projects, and supporting the take up of ELTIFs has been identified by the European Commission as a priority work area within the Capital Markets Union project.
Structure and Authorisation
ELTIFs are established under the EU ELTIF Regulation, which lays down harmonised EU rules relating to the authorisation of ELTIFs, portfolio composition, diversification, eligible assets, marketing, redemptions and transparency that must be complied with by ELTIFs. While in general ELTIFs are required to be structured as closed-ended investment vehicles, early redemption rights are permissible under certain conditions.
Only an EU alternative investment fund (“AIF”) may be authorised as an ELTIF, and an ELTIF manager must comply with the requirements of the Alternative Investment Fund Managers Directive (“AIFMD”). A key distinction between the AIFMD and the ELTIF framework is that, unlike AIFs managed by AIFMs, ELTIFs can be marketed to retail investors using a pan-European passport.
Investment Policies and Eligible Assets
To qualify as an ELTIF, a fund must invest at least 70% of its capital in prescribed types of assets. The eligible investments for the purpose of the 70% threshold include, broadly, investments in unlisted companies (or listed companies with a minimum market capitalisation of €500 million) needing long-term capital; real assets that require long-term capital to develop them; loans granted by the ELTIF to qualifying portfolio undertakings as defined by the ELTIF Regulaton; and European Venture Capital Funds (“EuVECAs”), European Social Entrepreneurship Funds (“EuSEFs”) and other ELTIFs.
The ELTIF Regulation limits derivative and leverage use by an ELTIF. Cash borrowing up to 30% of the value of the capital of the ELTIF is permitted, subject to conditions including that the cash may not be used for granting loans to qualifying portfolio undertakings. However, ELTIFs may otherwise grant loans to a qualifying portfolio undertaking with a maturity no longer than the life of the ELTIF.
The Irish Minister for Finance, Michael Noonan, signed the European Union (European long term investment funds) Regulations 2015 into law on 9 December 2015 to facilitate the establishment of ELTIFs in Ireland. ELTIF application forms are now available from the Central Bank of Ireland.
We have prepared a useful briefing note examining the main features of the ELTIF in more detail. Should you require any further information in relation to ELTIFs, please get in touch with your usual Asset Management and Investment Funds Group contact.