EC proposal for New Investment Fund Framework – ELTIF

On the 28th June 2013, the Malta Financial Services Authority (MFSA) issued a Circular to the Financial Services Industry on the proposal by the European Commission for the implementation of a new investment fund framework designed for investors desirous of effecting long-term investments into corporate entities and projects. These so called private European Long-Term Investment Funds (ELTIFs) would only invest in businesses that need money to be committed to them for long periods of time. The Commission’s proposal was presented to the Heads of State and Government at the last European Council of 27th June, where long-term financing of the real economy was on the agenda.

In terms of the proposal, ELTIFs would be available to all types of investor across Europe subject to certain requirements set out in EU law and the provision of appropriate information to investors and would be allowed to invest in certain defined types of long-term assets and firms and would have to spread their money/ assets to reduce risks. Any ELTIF manager would also have to comply fully with the requirements of the Alternative Investment Fund Managers Directive (the “AIFMD”) to provide adequate protection for its investors.

The proposal provides that a set of common rules would ensure that all ELTIFs would:

• Always have a depositary for the safe-keeping of assets;
• Comply with the rules on spreading assets to prevent too much money going into one asset;
• Only use derivatives to manage currency risks in relation to the assets they hold, and not for speculation; and
• Comply with applicable limitations on borrowing.

As long-term investment funds, ELTIFs will invest in illiquid assets which are difficult to buy and sell and investors will only be able to withdraw money after the specified end date of their investment, which will, of course, be clearly disclosed prior to investment.

The proposal is in the legal form of a regulation, which is directly applicable to EU Member States. Accordingly, whilst Member States will not be required to transpose it into their national laws, the proposal will impose some limited requirements on supervisory authorities in Member States which will depend on whether they are the home country where the manager creating and marketing the ELTIF is based or another Member State in which the ELTIF is being sold/ marketed (the host country).

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