ESMA ‘s new responses clarify important aspects of the European long-term investment funds regime , specifically regarding eligible assets, liquidity, redemptions, debt, and profit distribution. The European Securities and Markets Authority (ESMA) has published 16 responses to a total of 20 questions concerning the application of the European long-term investment funds regime (ELTIF).
These questions and answers clarify practical aspects of compliance with Regulation (EU) 2015/760,1 on FILPE, as amended by Regulation (EU) 2023/606.2
Below, we summarize the main criteria set by ESMA:
1. Investments through intermediary entities
The Commission has clarified that recital 12 of Regulation (EU) 2023/606 allows structuring the investment using intermediary companies (for example, a special purpose vehicle, SPV), but does not expand the list of eligible assets , which is closed and is set out only in article 10 of the regulation on FILPE .
2. Investments in other funds
ESMA specifies that investments in alternative investment funds (AIFs) not established in the European Union are not eligible as target funds (Article 10.1.d) of the FILPE regulation.
Conversely, investments in the following may be eligible as target funds:
Other FILPE.
European venture capital funds (or EuVECA).
European social entrepreneurship funds (EuSEF).
Unified Investment Trusts (UCITS).
EU-based alternative investment funds , provided they are controlled by an authorized alternative investment fund manager in the EU and meet the requirements set out in Article 10.1.d). In addition, the FILPE regulation may allow the fund to maintain direct or indirect exposure to non-EU alternative investment funds through other means (Article 9) and also the UCITS3 Directive (Article 50).
3. Indebtedness and suspension of portfolio requirements
ESMA clarifies that the provisions relating to:
Debt limits .
The temporary suspension of portfolio composition and diversification requirements applies to both closed and open FILPEs, but must be interpreted and applied proportionately, taking into account the nature and characteristics of the FILPE, so that conditions that are only relevant to one type of fund may not be applicable to the other.
4. Liquid Assets
Furthermore, it introduces relevant clarifications on liquidity and redemption management , such as the following:
The FILPE regulations do not generally require the fund to set or disclose a minimum percentage of liquid assets. This obligation only arises when the manager decides to calibrate liquidity in accordance with Annex II of Delegated Regulation (EU) 2024/2759.4.
To verify the sufficiency of liquidity , the calculation of liquid assets must be performed on the effective date of payment, and not on the date of application by the investor.
It is accepted that the FILPE may fall below the minimum liquidity thresholds temporarily and exceptionally, provided that the manager takes the necessary measures to restore them in the interest of investors.
When estimating available cash flows , the manager can only consider income with a high degree of certainty (such as interest or amortizations), and must exclude asset sales and new subscriptions.
5. Matching mechanism and absence of dilution
The matching mechanism allows an outgoing investor to sell their shares directly to an incoming investor, without the FILPE having to disburse cash or issue new shares .
Since the total number of units remains unchanged and the fund’s portfolio is unaffected, there is no dilution for other investors. Consequently, ESMA clarifies that the use of matching alone does not justify the application of adjustments or anti-dilution fees, which could only be applied if, in addition to matching, ordinary subscriptions or redemptions are processed.
6. Profit Distribution
ESMA confirms that a FILPE may set a minimum holding period during which investors are not entitled to receive distributions, provided that:
This rule is clearly stated in the fund’s distribution policy.
Investors should be informed transparently .
It also clarifies that this minimum period does not constitute a commission or a cost for the purposes of the FILPE regulations and, therefore, should not be included in the information on the fund’s costs and expenses.
7. Liquid Asset Limits and Repayments
The Commission clarified that, although Article 18.2.d) of the FILPE regulations sets a maximum repayment limit on each repayment date, FILPEs may set more restrictive limits , such as:
A fixed percentage of net assets.
A predetermined absolute amount.
A reference to the fund’s net asset value.
8. Additional requirements Member States
may not impose additional requirements, such as establishment or local domicile requirements, for the eligibility of FILPEs when these are used as underlying investments in insurance products or pension schemes , as this is contrary to the harmonised regime and the European passport principle.
Por Funds Society, Madrid
Por Alicia Miguel Serrano