24 August 2023

EFAMA The newly revised ELTIF regime will only be successful if ESMA maintains sufficient flexibility

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. ESMA is currenly finalising technical rules

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....

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