UCITS Eligible Assets: ESMA Signals a Paradigm Shift

On 26 June 2025, the European Securities and Markets Authority (ESMA) released its long-awaited Final Report on technical advice to the European Commission regarding the review of the UCITS Eligible Assets Directive (EAD). While still at an early stage of the legislative process, the proposals mark the most far-reaching rethink of the UCITS investment framework in more than a decade.

90% Look-Through: A New Standard for Eligibility

At the heart of the Report is a paradigm shift: ESMA proposes that 90% of a UCITS portfolio should comply with UCITS eligibility rules on a “look-through” basis. This would close long-standing flexibility allowing managers to gain exposure to real estate, commodities or other alternative assets through UCITS-eligible wrappers such as transferable securities or indices.

Within a 10% “trash ratio”, UCITS could still access some alternative assets — loans, catastrophe bonds, crypto-assets, commodities, real estate, SPACs, ETNs — without applying the look-through test. But managers would need to evidence compliance with UCITS’ core requirements on liquidity, valuation and risk management.

This change would impact a number of UCITS strategies — notably those built on commodity indices or REITs — and may push some sponsors towards the AIFMD regime when alternative exposure exceeds the 10% carve-out. ESMA urges the Commission to allow long transition periods to avoid disorderly deleveraging.

Sharper Definitions: Transferable Securities & MMIs

ESMA also proposes to tighten the definitional perimeter of transferable securities (TS) and money market instruments (MMIs):

• TS: no automatic liquidity presumption for listed instruments; stronger “reliable valuation” and due diligence obligations; prohibition of TS linked to ineligible assets beyond the 10% limit.
• MMIs: eligibility to be determined at purchase, with stricter liquidity criteria (volume, dealers, secondary market depth, transaction costs) and no reclassification based on residual maturity.

Liquidity: From Presumption to Evidence

Managers would have to actively demonstrate liquidity at both asset and portfolio level. ESMA lists nine minimum factors (turnover, bid/offer spread, issue size, volatility, etc.) and plans to scrap the traditional presumption that listing equals liquidity. This will likely require new internal frameworks and data collection.

Financial Indices & AIF Exposure

Financial indices will also be subject to the look-through test (except within the 10% bucket). ESMA suggests removing national discretion on index concentration limits (20%/35% rules) and reinforcing benchmark oversight.

UCITS investments in AIFs remain possible but with a stricter equivalence test and clear rules distinguishing closed-ended and open-ended AIFs. EU AIFs managed by authorised AIFMs would benefit from a rebuttable presumption of equivalent supervision.

Towards a New “Retail AIF”?

Perhaps most strategically, ESMA invites the Commission to explore a new EU semi-liquid AIF product aimed at retail investors seeking private market or (re)insurance exposures beyond UCITS. This could create a middle ground between UCITS and ELTIF 2.0.

Practical Impacts for the Industry

• Product design — UCITS with commodity, real estate or private debt exposures will need to remap their portfolios against the 90%/10% test and assess whether repositioning is possible or whether an AIF structure is more appropriate.
• Liquidity governance — Managers should prepare for enhanced liquidity due diligence, including robust asset-level monitoring and documentation; the “listed = liquid” shortcut will disappear.
• Valuation controls — Stronger requirements around reliable and independent pricing for TS and MMIs may drive operational changes and data sourcing costs.
• Regulatory strategy — Asset managers considering new retail-facing private market products should track the potential “retail AIF” initiative as it could create fresh distribution opportunities.
• Transition planning — Given the risk of forced sales, early scenario modelling and engagement with regulators/investors on transition timelines will be essential.

Next Steps

The Commission is not bound to act but is expected to consult in 2026 before drafting Level 1 and 2 texts. For now, UCITS managers should map portfolios against the 90%/10% framework, review liquidity and valuation processes, and assess whether their strategies remain sustainable under the revised regime.