ELTIF II

On 20 March 2023, Regulation (EU) 2023/606 ("ELTIF II") amending the initial ELTIF Regulation (EU) 2015/760 ("ELTIF I) was published in the OJEU.

ELTIF II removes the barriers to the success of European long-term investment funds ("ELTIFs") under ELTIF I. In particular, ELTIF II introduces the following amendments:

• broader scope of eligible assets with the inclusion, for instance, of listed companies with a market capitalization of up to EUR 1.5 billion, FinTech companies, simple, transparent and standardised securitisations ("STS") and green bonds;
• broader definition of what constitutes a "real asset", which is now simply "an asset that has an intrinsic value due to its substance and properties", thus increasing significantly the type of real assets in which an ELTIF can invest;
• possibility to adopt a fund-of-fund strategy or to set up a master-feeder structure;
• more flexible portfolio composition with a larger portion of liquid assets and less strict diversification rules;
• exemption of the diversification and concentration rule requirements for ELTIFs marketed to professional investors only;
• clarification that ELTIFs can invest the majority of their assets in investments located in third countries;
• possibility to conduct minority co-investments through intermediary entities, including special purpose vehicles, securitisation or aggregator vehicles, and holding companies;
• removal for retail investors of both the minimum investment amount of EUR 10,000 and the limit of investments in ELTIFs to 10% of their portfolio;
• while the suitability test for retail investors is still required, there is no longer an obligation to provide investment advice, and with the possibility for a retail investor to bypass a negative conclusion to that test by giving express consent to proceed with the transaction; and
• a MIFID II license is no longer required for Alternative Investment Fund Managers ("AIFMs") that market themselves the ELTIFs which they manage to retail investors (without investment advice).

ELTIF II will become applicable on 10 January 2024. Specific provisions are provided for ELTIFs authorised before 10 January 2024 ("Existing ELTIFs"), in particular:

• Existing ELTIFs benefit from a grandfathering period and have until 11 January 2029 to comply with ELTIF II, unless they do not raise additional capital, in which case they shall be deemed to comply with the revised regulation.
• Existing ELTIFs may also choose to become subject to ELTIF II after 10 January 2024 (opt-in), in which case they must notify their national competent authority. Although there is no official CSSF position yet, ELTIFs newly authorised prior to 10 January 2024 should already disclose their intention to opt-in after 10 January 2024 and hence the rules that will apply after such date, in order to protect the interests of investors and for the sake of transparency.

ESMA published draft regulatory technical standards (RTS) for consultation on 23 May 2023. These RTS bring further guidance on the provisions relating to the redemption of units or shares of ELTIFs. The consultation is open until 24 August 2023 (ESMA34-1300023242-124).