- ELTIFs can be sold to individual investors
- In general, ELTIFs are closed-ended funds
- ALFI has a guide to ELTIFs
As the regulation of European Long-Term Investment Funds (ELTIFs), established by the European Commission to give new impetus to economic recovery in Europe, entered into force on 9 December 2015, the Association of the Luxembourg Fund Industry (ALFI) announced that Luxembourg is prepared and believes it has a key role to play in ensuring the success of ELTIFs.
“The objective of the EU in setting up ELTIFs was to boost smart, sustainable and inclusive growth,” said Denise Voss, Chairman of ALFI. “Take-up of the new funds may be a gradual process, but we believe that Luxembourg has the in-depth experience and expertise required to support fund promoters wishing to launch ELTIFs, and we are ready to assist them.”
Ms Voss continued: “To articulate the essential role of investment funds for the global economy is an important part of the ALFI 2020 Ambition. Luxembourg has practical solutions for ELTIFs, the Luxembourg legal framework offering a wide range of solutions to fulfil the needs of ELTIFs, their managers and investors.”
ELTIFs are an initiative of the European Commission under its Capital Markets Union plan. They are a pan-European regime for Alternative Investment Funds (AIF) which channel the capital they raise into European long-term investments in the real economy in order to achieve growth and create jobs.
The ELTIF represents a milestone in the development of the cross-border European long-term funds business. Their long-term focus distinguishes them from most existing investment vehicles and they are therefore particularly suitable for institutions such as pension schemes and insurance companies with long investment horizons, as well as complementing and diversifying individuals’ savings portfolios.
Like the funds subject to the Alternative Investment Fund Manager Directive (AIFMD) legislation, they must have an authorised alternative investment fund manager, but like UCITS, their pan-European marketing ‘passport’ allows them (under certain conditions) to be sold to individual investors who may not necessarily be classified as professional or sophisticated.
“The leading position of Luxembourg as a true cross-border and fund distribution hub will greatly serve the development of ELTIFs”, Ms Voss concludes.
ALFI has prepared brochure on ELTIFs which gives details on what ELTIFs could look like and what the regulatory requirements are such as the fact that an ELTIF shall not undertake any of the following activities:
- Short selling of assets;
- Taking direct or indirect exposure to commodities;
- Entering into securities lending, securities borrowing, repurchase transactions or any other agreement which has an equivalent economic effect and poses similar risks, if thereby more than 10% of the assets of the ELTIF are affected; and
- Using derivatives (except for hedging purposes)
The document is available on the ALFI website.