ELTIF 2.0 – the Commission adopts Level 2 measures

On 19 July 2024, the European Commission adopted a Delegated Regulation along with two Annexes, which set out draft Level 2 regulatory technical standards (RTS) under the amended ELTIF Regulation (ELTIF 2.0).

What’s the background to this?

As we have previously reported, the usual process of developing such measures (ESMA produces draft RTS and the Commission adopts them, usually without any significant change) has been far from smooth on this occasion.

ESMA’s first draft in December 2023 was rejected by the Commission, and, after ESMA had submitted a revised text in April 2024 at the Commission’s request, the Commission circulated essentially its own draft internally for consultation.

What’s the timing?

The Commission has now adopted the draft RTS and sent them to the European Parliament and to the Council of the EU – these now have three months to scrutinise them, extendable by a further three months by either institution.

This means that we can expect the RTS to be agreed and published in the Official Journal sometime in Q4 2024, entering into force the day following publication.

What does the Delegated Regulation contain?

The Level 2 RTS supplement Articles 9(3), 18(6), 19(5), 21(3) and 25(3) of ELTIF 2.0 and specify:

• the use of derivatives solely for hedging purposes

  This is permitted where it is ‘economically appropriate’ for the ELTIF, consistent with the ELTIF’s risk-profile of the ELTIF and aimed at a verifiable reduction of the risks

• the circumstances in which the life of an ELTIF is compatible with the life-cycles of each of its individual assets

• the minimum holding period

  An ELTIF manager may choose a minimum holding period, provided it considers a list of criteria set out in Article 3 of the Delegated Regulation, including (among other things):

  • the long-term nature and investment strategy of the ELTIF
  • the ELTIF’s underlying asset classes, their liquidity profile, and their position in their life-cycle
  • the ELTIF’s investment policy and
  • the ELTIF’s investor base

• redemption

  Where an ELTIF permits redemption during its life cycle, the manager must provide the ELTIF’s NCA with information set out in Article 4 of the Delegated Regulation, including:

  • the periodicity and duration of the redemptions
  • description of the available LMTs and the conditions for their activation
  • the conditions and procedures for requesting redemptions and for processing the redemption requests received.

  Where an ELTIF permits redemption during its life cycle, its redemption policy must contain all the elements set out in Article 5 of the Delegated Regulation, including:

  • the conditions under which redemptions can be granted
  • the time window within which redemptions can be granted
  • the frequency or periodicity at which redemptions can be granted.

  The percentage of an ELTIF’s assets which can be redeemed is to be calibrated, at the manager’s discretion, on the basis of either:

  • the ELTIF’s redemption frequency and notice period (see the three options set out in Annex I) or
  • the ELTIF’s redemption frequency and minimum percentage of liquid assets (see Annex II).

• liquidity management tools (LMTs)

  An ELTIF manager may (but does not have to) implement at least one anti-dilution LMT from among the following:

  • anti-dilution levies
  • swing pricing
  • redemption fees.

• the matching of transfer requests

  Where an ELTIF provides for the full or partial matching of transfer requests of units or shares in the ELTIF of exiting and incoming investors, its matching policy must contain the criteria set out in Article 7 of the Delegated Regulation, including:

  • the format, process, and the timing of the matching
  • the frequency or periodicity of the matching window, and the duration of that window
  • the dealing dates
  • the requirements for the submission of purchase and exit requests, including the deadlines for submitting such requests
  • the settlement and pay-out periods;

• costs disclosure
  Article 12 of the Delegated Regulation sets out criteria for common definitions, calculation methodologies and presentation formats of the costs of an ELTIF.