On 20 March 2023, Regulation (EU) 2023/606 (ELTIF Amending Regulation) amending Regulation (EU) 2015/760 as regards the requirements pertaining to the investment policies and operating conditions of European long-term investment funds (ELTIFs” and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of other cash and other fund rules (the ELTIF Regulation) was published in the EU Official Journal.

The ELTIF Amending Regulation comes within the wider context of the capital market union’s (CMU) action plan as announced by the European Commission on 25 November 2021 and more importantly, within the aim to boost European capital markets. Maintaining the objective of boosting long-term investments in the real economy, the ELTIF Amending Regulation aims to present a more attractive ELTIF framework that comprises a higher level of flexibility together with a simplified regime for distribution.

Entry into force

The ELTIF Amending Regulation and its revised regime shall enter into force on 9 April 2023 and become applicable on 10 January 2024.

Transition period

• Authorized ELTIFs under the ELTIF Regulation benefit from a transitional 5 year period and must comply with the ELTIF Amending Regulation by 11 January 2029.
• Subject to certain conditions, managers of existing ELTIFs may opt to apply for the ELTIF 2.0 regime, provided that the ELTIF’s competent authority is notified and approves the opt-in.
• ELTIFs authorized prior to 10 January 2024 which do not raise additional capital shall be deemed compliant with the ELTIF Amending Regulation.

Key changes

• Assets: A broadened scope of eligible investment assets is key among the amendments introduced by the ELTIF Amending Regulation. Notably in the introduction of (i) simple, transparent and standardized securitizations and European green bonds¹ to the amended definition of assets and (ii) a simplified definition of real assets, itself coupled with the removal of the minimum threshold for individual value of real estate assets.
• Structuring Options: In turn, structuring flexibility is introduced via options for indirect investments, co-investments, master-feeder structures and fund-of-fund strategies, all subject to respective arrangements to ensure risks are managed accordingly and specific conditions.
• Portfolio and Diversification Thresholds: Amended thresholds in portfolio composition and diversification form part of the key amendments introduced by the ELTIF Amending Regulation. Notably in (i) the reduction of the diversification in eligible investment assets from 70% to 55% and (ii) setting a concentration of limits of no more than 30% of the units or shares of a single ELTIF, EuVECA, EuSEF, UCITS or EU AIF. Furthermore, ELTIFs marketing solely to professional investors will be able to take advantage of the revised leverage limit, increased from 30% to 100% of such ELTIF’s net asset value.
• Redemption rights: The ELTIF Amending Regulation, while not allowing for open-ended ELTIFs outright, introduces the possibility for redemption rights for ELTIF investors during the lifetime of the ELTIF under specific requirements, including those for appropriate redemption policies and liquidity management tools compatible with the respective ELTIF’s long-term investment strategy.
• Distribution and marketing: The ELTIF Amending Regulation does not only introduce a harmonized distribution regime for retail investors but further aligns the sustainability assessment of retail investors with that of MiFID II. The ELTIF Amending Regulation further introduces a harmonized distribution regime for retail invests and aligns the suitability assessment of retail investors with that of MiFID II. The latter referring to the requirements linked to marketing of ELTIFs to retail investors only in such cases where an assessment of suitability has been a carried out and a statement of suitability having been provided in line with Article 25(2) and (6), respectively, of MiFID II. Lastly, the ELTIF Amending Regulation removed the minimum investment requirement or ‘entry ticket’ of €10,000 and investment cap of 10% for retail investors whose portfolio does not exceed €500,000.

Luxembourg : A prime location for ELTIFs

With more than 50% of registered ELTIFs²  being domiciled in Luxembourg since the introduction of the ELTIF Regulation, Luxembourg’s position as a leading financial and funds center located in the heart of Europe coupled with its financial stability promises further growth in the ELTIF realm.

Link to ELTIF Regulation.

Link to ELTIF Amending Regulation.

Link to ESMA ELTIF register. 

1. Bonds issued, pursuant to a Regulation of the European Parliament and of the Council on European green bonds, by a qualifying portfolio undertaking, as such is defined in the EuVECA Regulation.↩
2. As per ESMA’s ELTIF Register, 85 ELTIFs have been launched as of March 2023, 49 of which are located in Luxembourg, 21 in France, 13 in Italy and 2 in Spain.↩