05 May 2016
European long term investment funds (ELTIFs), are designed to boost non-bank investment in the real economy across Europe by channelling money into a broad range of asset classes. These include infrastructure projects, real estate and listed and unlisted SMEs, each of which may require long-term capital investment. They will enable pension funds, insurance companies, professional and, subject to a minimum investment requirement, retail investors to invest in these asset classes, provided that such investment benefits the EU economy.
Benefits of the ELTIF
ELTIFs may accept subscriptions from:
ELTIFs may invest in or gain exposure to either ‘qualifying portfolio undertakings’ or certain categories of ‘real assets’.
Qualifying portfolio undertaking
A qualifying portfolio undertaking is an entity that fulfils all of the following requirements:
Companies in the same group for the purposes of consolidated accounts shall be regarded as a single qualifying portfolio undertaking.
The following instruments and loans issued by or granted to a qualifying portfolio undertaking shall be eligible for investment by an ELTIF:
An ELTIF may invest directly in an individual ‘real asset’ with a value of at least €10 million and may also invest in any such real asset indirectly via a qualifying portfolio undertaking. The ELTIF Regulation states that real assets include, but are not limited to, infrastructure, intellectual property, vessels, equipment, machinery, aircraft or rolling stock and commercial or residential property.
Portfolio composition and diversification
An ELTIF must invest at least 70% of its capital in the eligible investments listed above. However, the application of this requirement may be deferred to a date that is five years or half the life of the ELTIF (whichever is the earlier) after the date of authorisation of the ELTIF.
An ELTIF may not take exposure to commodities, short sell, use financial derivative instruments (other than for hedging purposes), or invest directly or indirectly in commodities or invest more than 10% of its capital in securities lending, securities borrowing, repurchase agreements or reverse repurchase agreements. The aggregate risk exposure of an ELTIF to a repo counterparty shall not exceed 5% of its capital.
Investment in derivatives
ELTIFs may only use derivatives for hedging purposes. The aggregate risk exposure to a counterparty of the ELTIF stemming from over the counter (OTC) derivative transactions shall not exceed 5% of its capital.
In summary, the ELTIF is an innovative fund product designed to encourage long term investment by institutional and retail investors. The Central Bank of Ireland is the competent authority for the purposes of the ELTIF Regulation and it has confirmed that it is ready to accept applications for establishment of an ELTIF.