European Commission proposes changes to ELTIF technical standards
The European Commission has come out against the draft technical standards for the European Long-Term Investment Funds (ELTIFs) saying that the regulator’s proposal “does not sufficiently cater for the individual characteristics” of different funds.
The European Securities and Markets Authority (ESMA) published its draft regulatory technical standards (RTS) in December, a month before new rules for ELTIFs came into effect. The new rules are designed to encourage private investors to put money into long-term, illiquid assets, including credit, which were typically the preserve of institutional investors.
Although the newly revamped regulation for ELTIFs prompted several fund launches, with asset managers looking to benefit from renewed momentum, some groups have been waiting for the confirmation of the RTS as it could impact how redemptions are implemented.
Read more: Fidelity prepares to launch multi-credit ELTIF
On Monday, the European Commission said a more proportionate approach to drafting the RTS needs to be taken, particularly regarding redemptions and liquidity management tools.
The Commission noted that it plans to adopt the RTS with amendments.
Its amendments include adding in a requirement to inform national authorities before material changes are made to redemption policies and removing the requirement of a minimum 12-month notice period.
In addition, the draft RTS imposed on ELTIF managers a requirement to have at least one anti-dilution liquidity management tool. But, the Commission said this could be “construed as disincentivising or limiting the possibility of ELTIF managers to implement different liquidity management tools” and therefore should be amended.
Read more: ELTIF 2.0 presents “interesting opportunities” for private credit
“It is not clear why ELTIFs would be treated differently from other AIFs, including national long-term funds marketed to retail investors which are not subject to the same requirements imposed upon ELTIFs,” the Commission noted.
The Commission also highlighted several contradictions in cost disclosure requirements and said that the RTS should be amended to better align the ELTIF regulation with that of the PRIIPs regulation, MiFID and the AIFMD.
Previously, the draft RTS was criticised by industry lobby group The European Fund and Asset Management Association (Efama), which said that it risked alienating potential investors.
Read more: Administrator Alter Domus extends private debt offering
Silke Bernard, global head of investment funds at Linklaters, said: “In essence, the EU Commission is asking for a more flexible approach reflecting the large variety of investment strategies ELTIFs can implement…From our discussions with a large number of asset managers, the previous RTS proposal was perceived as a step in the wrong direction and was deemed to make open-ended / evergreen ELTIFs unattractive to both sponsors and investors. This could have been a show stopper for many ELTIF projects in the make.”
She added: “We need to be mindful that this new draft may not be the final text though. As described in the EU Commission cover letter, this amended proposal has been sent back to ESMA who will now need to form a view on whether they wish to yet once more amend the draft RTS or whether they let the EU Commission adopt the now proposed draft. So in essence, not everything is sorted at this stage but this new draft is definitely a very helpful step into the right direction and will be welcomed by asset managers.”
