As insurers — which are Europe’s largest institutional investors — require access to a wide range of assets that provide attractive returns and portfolio diversification, improvements to the ELTIF framework to make it more appealing to institutional investors are welcome.
Insurance Europe has responded to a consultation by the EC on its proposal to review the European Long-Term Investment Funds (ELTIF) Regulation.
Nonetheless,
despite the EC’s suggested changes, the attractiveness of ELTIFs for
institutional investors is likely to remain limited. In many cases the
ELTIF’s design is less likely to meet individual investment needs than
traditional alternative investment funds (AIFs), which can be
implemented in a more flexible and tailored manner. In particular, the
ELTIF maintains its closed-end nature which limits its flexibility and
attractiveness, hence institutional investors, including insurers, will
tend to opt for traditional AIFs in the future.
Finally, it is
disappointing that the EC’s proposal does not include any changes to the
equity capital charge under Solvency II to reflect ELTIFs’ long-term
nature and to allow insurers to classify them as “long-term equity” and
benefit from a 22% capital charge. Insurance Europe notes, however, that
this would not preclude companies from using the look-through approach
to the underlying investments.
InsuranceEurope
© InsuranceEurope
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