The European Securities and Markets Authority (ESMA) is currently finalising technical rules on the functioning of European Long-Term Investment Funds (ELTIFs). It will be crucial to the future success of ELTIFs that these rules are supportive and not limiting. The number of ELTIFs has grown from only 20 in late 2021, to 95 as of August 2023, as a result of the beneficial ELTIF Regulation reforms. To keep this positive momentum going, our members recommend the following:
Redemption policies need to be sufficiently flexible to 1) keep ELTIFs attractive for retail investors and 2) allow effective and efficient liquidity management by fund managers.
- Although we agree with the criteria to determine a minimum holding period, setting a compulsory period of three years is arbitrary and does not take into account ELTIF’s variety of fund terms, asset classes and investment strategies. Such mandatory requirements may seriously jeopardise the viability of ELTIF offerings to retail investors, thereby limiting retail investors' access to illiquid asset classes with attractive returns.
- At the same time, setting a quarterly redemption frequency as the mandatory maximum would not accommodate the wide spectrum of investors’ needs and ELTIF investment strategies. Redemption frequency should not be evaluated in isolation without knowledge of the ELTIF's liquidity profile and the available liquidity management tools as described in the fund documentation.
- Fund managers should be able to choose the most appropriate liquidity management tools (LMTs) in both normal as well as stressed market conditions, depending on the fund’s structure and on a case-by-case basis.
- While a minimum notice period could be an option alongside the remaining LMTs, ESMA's suggestion of a 12 month notice period seems excessively lengthy. Funds already have a comprehensive list of liquidity management tools in the framework of the current review of the AIMFD without relying on a long notice period.
ESMAs suggestion to use a flexible, principles-based approach when designing matching policies makes sense, given the absence of any similar mechanisms at the EU level to help gauge the potential impact.
A common approach to cost disclosures in the future would help both fund managers and end-investors, rather than the current ‘piecemeal’ approach within the ELTIF, PRIIPs, MiFID II and PEPP regulations.
- Current debates on costs as part of the Retail Investment Strategy and the AIFMD review should be taken into account.
- The recently implemented PRIIPs disclosure regime should be given sufficient time to bed down and any lessons learned should be applied consistently across the costs regulatory framework.
Antoine de la Guéronnière, the Vice Chair of the Fund Regulation Standing Committee, commented: “The revised ELTIF regime is a world-class fund management standard for the broadening of the investor base in non-listed or less liquid assets. It’s success is dependent on innovative and carefully designed ESMA rules on ELTIF redemption policies. Flexibility is of the utmost importance in order for the new rules to accommodate a diversity of ELTIF structures and investment strategies, while maintaining the ELTIF label's continued success.”
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Note to editors :
You can read our full position paper here.
For further information, please contact:
Hayley McEwen
Head of Communication & Membership Development
Tel: +32 2 548 26 52
Email: Hayley.McEwen@efama.org
