ELTIFS have entered the building

On 09 December 2015, the European Long-term Investment Funds Regulation (the Regulation) becomes effective across the European Union, introducing a new type of collective investment vehicle, the ELTIF, which allows retail and professional investors to invest in companies and projects that need long term capital.

This Note looks at:

• What is an ELTIF?
• Managing and marketing ELTIFs.
• Applying for authorisation in the UK.
• Not all over bar the shouting - Level 2 measures are still awaited.
• Where can I find out more?

What is an ELTIF?

ELTIFs are new authorised fund vehicles which are intended to provide investors with long term, stable returns and help stimulate employment and economic growth in the EU by increasing investment in, for example, infrastructure projects.

In order to be appropriate for retail investors, an ELTIF will be restricted in the asset classes in which it can invest and in its investment strategies.

To qualify as an ELTIF, a fund must (among other things):

• be an EU alternative investment fund (AIF) as defined under the Alternative Investment Fund Managers Directive (AIFMD)
• have a manager which is an EU AIF manager (AIFM), authorised under the AIFMD
• invest at least 70% of its capital in eligible investment assets
• comply with various requirements regarding investment and borrowing restrictions, and
• observe strict limitations on its use of leverage and derivatives.

Managing and marketing ELTIFs

ELTIF managers will be able to make use of an EU-wide passport, subject to a notification procedure established under the AIFMD.

Managers of ELTIFs will also be able to market their funds to retail investors, provided they meet certain additional requirements set out in the Regulation. However, the manager must (among other things) carry out an internal assessment of the ELTIF, taking into account its intended duration and investment strategy, before deciding whether or not it is fit to be marketed to retail investors. The manager or distributor of the ELTIF will have to perform a suitability test to ensure the product is appropriate for each retail investor.

Applying for authorisation in the UK

On 30 November 2015, the FCA published a form by which a UK or EEA AIFM can apply for authorisation of a UK ELTIF and/or approval to manage a UK ELTIF.

However, the form cannot be used for an application to market the ELTIF within Europe -- for that, a separate application must be made, once the ELTIF is authorised, under:

• article 31 of AIFMD to market the ELTIF in the UK (using the form in FUND 3 Annex 1D) and/or
• article 32 of AIFMD to market the ELTIF in an EEA State other than the UK (using the form in SUP 13 Annex 8BR).

The AIFM must then supply the information set out in article 31(4) of the Regulation (using the form in FUND 4 Annex 1R).

Not all over bar the shouting - Level 2 measures are still awaited

Although the text of the Regulation was published on 19 May 2015 and becomes effective on 09 December 2015, a number of Level 2 measures still remain to be finalised by ESMA and the European Commission.

Where can I find out more?

Simmons & Simmons has been tracking the ELTIF Regulation since the European Commission's original proposal.

See also:

• European long-term investment funds - a summary of the new ELTIF Regulation (reviewed 24 August 2015)
• Getting ready for ELTIFs - HMTs regulations prepare for implementation in the UK (reviewed 13 November 2015)
• Implementing the ELTIF Regulation in the UK - summary of Part 2 of FCA's CP15/27 (09 October 2015)