European Long-Term Investment Funds (ELTIFs) In A Nutshell – Fund Management/ REITs

1. ELTIF: distributing alternative strategies to
nonprofessional investors

Regulation (EU) 2015/760 on European long-term investment funds
(ELTIF) has been amended by the revised ELTIF Regulation which is
applicable since 10 January 2024.

On 25 October 2024, Commission Delegated Regulation (EU)
2024/2759 of 19 July 2024 supplementing the ELTIF Regulation (ELTIF
RTS) was published in the Official Journal of the European Union.
The ELTIF RTS enter into force on 26 October 2024.

On 25 October 2024, Commission Delegated Regulation (EU)
2024/2759 of 19 July 2024 supplementing the ELTIF Regulation (ELTIF
RTS) was published in the Official Journal of the European Union.
The ELTIF RTS enter into force on 26 October 2024.

These ‘democratized’ vehicles have been structured
mainly as ELTIFs or Luxembourg undertakings for collective
investment setup under part II of the Law of 2010 or the
combination of ELTIFs and Part II structures. The Part II fund is a
Luxembourg domestic AIF that may accept all types of investors,
including retail.

The ELTIF regime enables alternative investment fund managers to
market their AIFs in the EEA with a passport to retail investors.
Part II funds have been wellknown to investors beyond the EEA for
several decades.

An ELTIF may be set-up as a Part II fund (or a compartment
thereof) to release the full potential of its retail marketing
passport.

2.Overview of Luxembourg investment
vehicles

3. ELTIF key features

• Alternative investment fund (AIF) –
  subject to AIFMD




• Managed by an authorised AIFM – no
  sub-threshold AIFM




• Authorised and supervised by the financial regulator
  (CSSF) – for compliance with ELTIF Regulation
  aspects




• Authorisation at the level of the sub-fund -
  possible to add ELTIF sub-funds to an existing structure




• EU marketing passport for professional and retail
  investors – unique advantage for AIFs




• Objective to facilitate the raising and channeling of
  capital towards long-term investments in the real
  economy

4. EU marketing passport

• The ELTIF Regulation is directly applicable in
  all EU countries




• Member states are not allowed to add
  requirements in the field covered by the ELTIF Regulation
  (art. 1 paragraph 3)




• Notification procedure as per AIFMD for both
  professional and retail investors

5. Eligible investors and distribution

6. Marketing to retail investors – additional
requirements

Suitability test

• Obtaining information about retail investor (MIFID
  II):
  

  • their knowledge and experience in the investment field

  
  

  • their financial situation

  
  

  • their investment objective




• Providing statement on suitability (MIFID
  II)




• Express consent of investor possible in case
  of negative statement




• No MIFID II license required for AIFM
  marketing directly

Depositary – additional requirements (application
of UCITS depositary regime):

• Entity authorised to act as depositary for UCITS (e.g. credit
  institution)




• No discharge of liability in the event of loss of financial
  instruments held by a 3rd party




• Liability of depositary cannot be excluded or limited




• Assets cannot be reused by depositary

PRIIPs Regulation

AIFMD

• Facilities: arrangement in host country(ies) to inform
  investors, handle orders, liaise with regulator… (no physical
  presence required)

7. ELTIF secondary market

• Listing of ELTIF possible




• Allowing free transfer of shares/units/interests is
  mandatory
  

  • subject to complying with regulatory requirements and
    conditions set out in the prospectus




• Possibility to provide for full or partial matching of
  transfer requests between existing and potential investors
  as detailed in the ELTIF RTS
  

  • subject to conditions set out in a detailed policy (role of
    AIFM, timing, price, ratio, costs and fees)

8. Conditions for redemptions upon request

• ELTIFs can be structured as closed-ended vehicles or
  open-ended vehicles




• Redemptions are possible if provided for in the ELTIF
  documentation




• Timeframe: not during ramp-up OR not during minimum holding
  period (except for feeder ELTIFs)




• ELTIFs have to put in place a redemption
  policy and liquidity management tools
  compatible with the long-term investment strategy
  

  • Anti-dilution liquidity management tool: ELTIF
    manager may discretionarily select and implement at least one tool
    among anti-dilution levies, swing pricing and redemption fees and
    may select other tools under certain conditions




• Redemptions on pro rata basis if requests
  exceed maximum % (possibility to foresee gating
  provisions)

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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.