AIMA: ESMA issues consultation on ELITF level 2 measures

24 May 2023

This consultation will be important in setting the liquidity parameters of ELTIFs under the new rules.

he European Securities and Markets Authority (ESMA) opened their consultation on draft regulatory technical standards (RTS) for the revised ELTIF regulation. This consultation will be important in setting the liquidity parameters of ELTIFs under the new rules. Key topics where the consultation seeks views include:

• ELTIF life cycle assessment: ESMA's consultation focuses on providing guidance to ELTIF managers on evaluating the compatibility of the fund's life cycle with that of its underlying assets.
• Minimum holding duration: ESMA proposes criteria for determining the minimum period investors must hold an ELTIF, along with an obligation for managers to justify any deviations from this period.
• Information disclosure to NCAs: The consultation emphasizes the information ELTIF managers should provide to NCAs, including details on the redemption policy, balance sheet, valuation procedures, liquidity stress tests, liquidity profiles, and liquidity management tools.
• Redemption policy and liquidity management tools: The consultation outlines the criteria for developing an effective redemption policy and introduces the requirement for ELTIF managers to adopt at least one anti-dilution liquidity management tool and implement redemption gates, with proper disclosure in the fund's documentation.
• Limiting redemption size: The consultation proposes criteria for ELTIF managers to assess the percentage of assets that can be redeemed, thereby establishing a size limit for redemptions.
• Matching mechanism: ESMA details the circumstances and process for utilizing the matching mechanism to align redemptions with new investments, including the disclosure obligations for ELTIF managers when employing this mechanism.
• Asset disposal valuation: ESMA amends the criteria for valuing assets to be divested, specifying a deadline of six months for completing the valuation process after informing the competent authority about the disposal of ELTIF assets.
• Cost disclosure framework: The consultation provides definitions, calculation methodologies, and presentation formats for disclosing various costs associated with ELTIFs, such as setup costs, asset acquisition costs, management and performance fees, distribution costs, and other expenses, along with guidelines on disclosing the overall cost ratio.

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