On 20 March 2023, Regulation (EU) 2023/606 of the European Parliament and of the Council of 15 March 2023 amending Regulation (EU) 2015/760 as regards the requirements of pertaining to the investment policies and operating conditions of European long-term investment funds and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of cash and other fund rules ("ELTIF 2.0") was published in the Official Journal of the European Union (the "OJ"). ELTIF 2.0 enters into force on the twentieth day following its publication in the OJ and will apply across the EU from 10 January 2024. With improvements that are especially advantageous for retail investors, the revised regime now has the potential to establish itself as an attractive "go-to" fund structure for long-term investments.
A number of significant legislative changes have been introduced in ELTIF 2.0, making the ELTIF fund structure more appealing to asset managers and investors alike. Such changes include:
- A broader scope of eligible investment assets, including the possibility of investing in FinTechs, STS securitisations and green bonds, as well as a simplified definition of "real assets", and an increased market capitalisation threshold;
- Flexible fund rules that allow for higher percentage of liquid investments, more flexible risk diversification requirements, the use of increased leverage, and the possibility of investing in fund-of-funds and master-feeder structures; and
- Better accessibility and safer conditions for retail investors, including the elimination of the minimum net worth criterion and the prior €10,000 entry ticket, as well as the harmonisation of the distribution regime through the alignment of the ELTIF suitability test with MiFID II.
Upon the entry into application of ELTIF 2.0, existing ELTIFs launched under the current regime will continue to be considered compliant for a period of five years until 11 January 2029. Having said this, any such ELTIFs wishing to benefit from the new regime may still be able to do so by simply notifying the relevant national competent authority. Moreover, ELTIFs authorised before 10 January 2024 and which do not raise additional capital, shall also be considered as compliant with ELTIF 2.0.
At a time when traditional sources of financing are becoming more difficult for businesses to obtain, it is anticipated that the reform of the ELTIF framework will result in a significant increase of investment into the EU economy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.