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On 26 November 2014, the European Commission, the Council of Europe and the European Parliament, reached an agreement about a Regulation on European Long-Term Investment  Funds  (the “Regulation”), which establishes a new investment vehicle, the European Long-Term Investment Fund (the “ELTIF”),  which will be available for marketing to all investors.

By restricting the asset classes in which such funds can invest, the legislator aimed at providing investors with long-term stable returns and at stimulating employment and economic growth in the European  Union (the “EU”) by increasing investment in various projects.

The Regulation will enter into force twenty  (20)  days after publication and will become applicable six (6) months after its entry into force being July 2015.

Within four (4) years of the ELTIF Regulation entering into force, the Commission will review the Regulation’s application and impact on the investors, asset diversification and marketing.

What is the Applicability and Scope of the ELTIF

General  Application and Scope

The ELTIF is a type of collective investment framework allowing investors to put money into companies and projects that need long-term capital. It is aimed at investment fund managers who want to offer long-term investment opportunities to institutional and private investors across Europe, e.g. in infrastructure projects.

To benefit from this cross-border passport, new investment vehicles would have to meet rules designed to protect both investors and the companies and projects they invest in.

ELTIFs are designed to facilitate investment into asset classes that are too illiquid to be served by fund structures such as Undertakings for the Collective Investment of Transferrable Securities (the “UCITs”) which must offer investor the chance to exit at least twice a month.

What has changed?

The ELTIFs could be offered to investors in any European Union (the “EU”) country with minimal red tape in individual countries if the funds meet certain rules being the following:

The types of assets and companies ELTIFs could invest in:

ELTIFs can only invest in unlisted companies needing long-term capital. ELTIFs can also invest in certain listed small and medium-sized enterprises (the “SMEs”), real assets that need long-term capital to develop them, intellectual property and other intangible assets, as well as European Venture Capital Funds (the “EuVECA”), and European Social Entrepreneurship  Funds (the “EuSEF”).

Because of the long-term nature of the assets they will invest in, it may take ELTIFs a number of years to invest fully all of the money in the fund. ELTIFs will have up to five (5) years to invest at least seventy percent (70% ) of the money. They can have thirty percent (30%) in other assets. This is to provide the ELTIFs with some flexibility regarding when to sell assets or replace them with new ones. The thirty percent (30%) buffer can be held in assets that would be eligible for a UCITS fund. This is to prevent ELTIFs from holding risky assets.

The information ELTIFs would have to give to investors, being retail investors1 and professional investors2.

For an ELTIF, one of the most important risks that will be clearly explained will be that any investment is locked away for the life of the ELTIF. Should an AIFM offer the possibility to withdraw money out early, this would also have to be clearly disclosed to all investors, setting out the limited circumstances under which this would be possible.

If an ELTIF is marketed to retail investors, it would be a Packaged Retail and Insuranc e- based Investment Product (the “PRIP”) and so subject to the requirement to have a key information document (the  “KID”),  explaining its features and its risks. The KID will set out in plain language what the most important feature of the PRIP is and what its risks are.

How ELTIFs are set up and managed

ELTIFs will run for a specified period of time during which investors do not usually have the right to get their money back. Managers can allow investors to get their money back under certain circumstances. In which cases, it is to be clearly disclosed. ELTIFs strictly limit derivative use to currency and other directly related risks to avoid their use for wrongful trading.

Qualifying as an ELTIF

To qualify as an ELTIF, funds must:

  • only invest in specific types of assets and at least seventy percent (70%) of the money in the fund has to be invested in these assets;
  • only be offered by a manager who  is authorised under the Alternative Investment Fund Manager Directive (the “AIFMD”) as an Alternative  Fund Manager (the “AIFM”);
  • run for a specific period of time during which investors do not usually have the right to redeem;
  • strictly limit  derivative    use  to  currency  and other directly related risks,
  • limit leverage – an  ELTIF  may borrow up to thirty percent (30%) of its capital but may not use this to make loans and derivatives may only be used for hedging purposes.


The ELTIF must apply for authorisation to its home state regulator, submitting as part of its application its rules of incorporation, the identity of its proposed manager and depositary and a description of the information to be made available to investors.

An EU AIFM that wants to manage an ELTIF must apply to the ELTIF’s home regulator for authority to do so.

The ELTIF and the AIFM must be informed within two (2) months of submission of a complete application whether authorisation of the ELTIF and approval to manage the ELTIF has been granted.

The ELTIF must comply with the provisions of both the ELTIF Regulation and the AIFMD, while its AIFM must comply with the provisions of the AIFMD but will be responsible for ensuring compliance with the ELTIF, being liable for losses or damages resulting from non-compliance.

An ELTIF is restricted to investing only in (a) “eligible investment assets” or (b) UCITS.

The Regulation defines  “eligible investment  assets” as being:

  • equity or  quasi-equity   instruments  that  have been:
  • issued by a qualifying portfolio undertaking and acquired directly by the ELTIF from the qualifying portfolio undertaking or from  a third party via the secondary market;
  • issued by a qualifying portfolio undertaking in exchange for an equity instrument previously acquired by the ELTIF from the qualifying portfolio undertaking or from  a third party via the secondary market; or
  • issued by an undertaking of which the qualifying portfolio undertaking is a majority-owned subsidiary, in exchange for an equity instrument  acquired  in accordance with points (i) or (ii) above by the ELTIF from the qualifying portfolio undertaking or from a third party via the secondary  market
  • debt instruments issued by a qualifying portfolio  undertaking;
  • loans granted  by  the  ELTIF  to  a  qualifying portfolio undertaking with a maturity no longer than the life of the ELTIF;
  • units or shares of one or several other ELTIFs, European  Venture   Capital   Funds (“EuVECAs”) and European Social Entrepreneurship Funds (“EuSEFs”), provi ded that those ELTIFs, EuVECAs and  EuSEFs have not themselves  invested  more than 10% of their capital in ELTIFs;
  • direct holdings or indirect holdings  via qualifying portfolio undertakings of  individual real assets with a value of at least ten million euro (EUR 10,000,000) or its equivalent in the currency, and at the time, in which the expenditure  is incurred

Key Features

Diversification  and Concentration  Provisions

An  ELTIF   must invest at least seventy percent (70%) of its capital in eligible investment assets subject to certain limits as set out in the regulation. The seventy percent (70%) limit:

  • applies from the date specified in the article 12 of the This date must take into account the  ‘peculiarities  and characteristics of the assets’ in which the ELTIF is to invest and must be no later than five   (5)  years  after   authorisation  of  the ELTIF  (or,  if  earlier,  half  the  life  of  the ELTIF) – in exceptional circumstances, this may be extended by up to a further year with the approval of the ELTIF’s competent authority
  • may be temporarily suspended (for up to twelve (12) months) to allow the ELTIF to raise additional capital (or reduce its existing capital), and
  • ceases to apply  once  the ELTIF  starts to sell assets in order to redeem investors after the life of the ELTIF.

The ELTIF must not invest more than:

  • ten percent (10%) of its capital in instruments issued by, or loans granted to, any single qualifying portfolio undertaking
  • ten percent (10%)  of its capital directly  or indirectly in a single real asset
  • ten percent (10%) of its capital in units or shares of any single ELTIF, EuVECA or EuSEF
  • five percent (5%) its capital in UCITS assets where those assets have been issued by a single

In addition:

  • the ten percent (10%) figure referred to in the first two (2) bullets above can be raised to twenty percent (20%) if the aggregate value of assets held by the ELTIF in qualifying investment  portfolios  and individual real assets in which it  invest s more than ten percent (10%) of its capital does not exceed forty percent (40%) of the value of its capital; the five percent (5% ) limit referred to in the fourth bullet above can be raised to twenty five percent (25% ) where bonds are issued by a credit institution which has its registered  office in a Member State and is subject  to special public supervision designed to protect bond-holders;
  • the aggregate value of  units  or  shares  of ELTIFs, EuVECAs and EuSEFs in an ELTIF portfolio cannot  exceed twenty percent  (20% ) of the value  of the ELTIF’s capital
  • the aggregate risk exposure to a counterparty of  the  ELTIF  stemming  from  OTC  derivative transactions or repurchase agreements must not exceed five percent (5%) of the ELTIF’s capital
  • the ELTIF cannot acquire more  than  twenty five percent (25%) of the units or shares of a single ELTIF, EuVECA or EuSEF
  • the ELTIF cannot invest in an eligible investment asset in which its manager has a direct or indirect interest, other than by holding units or shares of the ELTIFs, EUSEFs or EuVECAs it
  • Where the ELTIF breaches the above diversification requirements and the contravention is beyond the control of the AIFM, the manager must rectify the position, “in an appropriate time period”, taking due account of the interests of the ELTIFs investors.

Investment  restrictions

An ELTIF  cannot:

  • engage in short selling;
  • take direct or indirect exposure to commodities, including via derivatives or indices;
  • enter into securities lending securities borrowing and repurchase agreements “or any other agreement which has an equivalent economic effect and  poses similar risks” if by doing so, more than ten percent (10%) of the ELTIF’s assets are affected,  and
  • use financial derivative  instruments (except where this solely serves the purpose of hedging risks inherent to other investment s of the ELTIF).

Borrowing  restrictions

An ELTIF may only borrow  cash provided  that it:

  • represents no more than  thirty  percent   (30%)   of  the capital of the ELTIF;
  • is used  to  invest   in  eligible   investment assets (other than loans granted to a qualifying portfolio undertaking with a maturity  no  longer   than  the  life  of  the ELTIF),  provided  that  the ELTIF’s  cash or  cash equivalent  holdings  are  not sufficient to acquire the participation in eligible investment  assets;
  • is in the same currency as the assets to be acquired with it;
  • has a maturity no longer than the life of the ELTIF;  and
  • does not encumber assets making up more than thirty percent (30%) of the ELTIF’ s

The ELTIF manager must specify in the ELTIF’ s prospectus whether or not it intends to borrow cash or not as part of its investment strategy.

Redemption, Disposal  and Distribution

Investors in an ELTIF will not ordinarily be able to redeem their units or shares before the “end of life” of the fund. The ELTIFs’ rules may, however, allow  for redemption before the end of life of the ELTIF where:

  • redemptions are not granted before the date specified in the ELTIF’s rules as being the date from which the seventy percent (70%) limit will apply;
  • at the time of authorisation and throughout the life of the ELTIF, the manager can demonstrate to the regulator that an appropriate liquidity management system and effective procedures for monitoring the liquidity risk of the ELTIF are in place, compatible with the long term ELTIF’ s investment strategy and proposed redemption policy;
  • the manager sets out a defined redemption policy, which clearly indicates the periods of time in which investors may request redemption;
  • the redemption policy ensures that the overall amount of redemptions within any period is limited to a percentage of the ELTIF’s UCITS assets and that this percentage is in line with the liquidity management and investment strategy disclosed by the manager; and
  • the redemption policy ensures fair treatment of investors with redemptions being granted on a pro rata basis should the total requests for redemption within any given period of time exceed the percentage referred to above.

The life of an ELTIF must be consistent with its long-term nature and must be sufficiently long to cover the life-cycle of each of the fund’s individual assets, measured according to both its ‘illiquidity profile and economic life-style’ and its stated investment objective.

The ELTIF must adopt an itemised schedule for the orderly disposal of its assets to redeem investors at its life’s end. This schedule must be disclosed to the regulator of the ELTIF at least one (1) year before the ELTIF’s end of life – the Commission is to set out details such a schedule must contain.

Proceeds generated by the assets in an ELTIF’ s portfolio must be ‘regularly’ distributed to investors unless required for future commitments of the ELTIF. The ELTIF must set out its distribution policy in its fund rules.


An ELTIF cannot be marketed in the EU unless a prospectus has been published, complying with the requirements of the ELTIF Regulation. Furthermore, an ELTIF cannot be marketed to retail investors unless a KID has been published and which complies with the PRIPS Regulation. The prospectus, KID and other marketing documents must, in particular, prominently notify investors of the illiquid nature of the ELTIF.


General provisions

To market an ELTIF to professional and retail investors in the ELTIF’s home Member State, the AIFM must notify the home state regulator. An AIFM of an ELTIF can market a fund to professional and retail investors in Member States other than the ELTIF’s home Member State upon notifying its home regulator.

Additional provisions applicable where the ELTIF is to be marketed to retail investors

These include that the AIFM must have in place, in each Member State in which it intends to market the ELTIF, facilities for making subscriptions, making payments to investors, repurchasing or redeeming units or shares and making available the information which the ELTIF and/or the manager must provide.

In the event that the manager has performed the suitability test and provided appropriate investment advice, but the potential retail investor’s portfolio does not exceed five hundred thousand euro (EUR 500,000), the manager must also ensure that the investor does not invest in aggregate more than ten percent (10%) of his portfolio in ELTIFs,  provided that the initial minimum amount invested in one or more ELTIFs is ten thousand euro (EUR 10,000).

Additional investor  protection  provisions  include that:

  • no preferential treatment or specific economic benefits are granted to individual investors or groups of investors
  • the fund must not be structured as a partnership, and
  • retail investors must be allowed  a cooling off period during the subscription period and for at least two (2) weeks after subscription, in which to cancel their subscription without charge.

Provisions regarding depositaries of ELTIFs marketed to retail investors

Where the ELTIF  is marketed to retail investors:

  • the ELTIF’s depositary must be a type of entity permitted to be a depositary under UCITS V;
  • the depositary’s liability cannot be excluded or limited by agreement where the ELTIF is marketed to retail investors – any agreement that contravenes this provision will be Nor can the depositary discharge itself of liability in the event of a loss of financial instruments held in custody by a third party;
  • no  ELTIF assets held in custody by the depositary can be reused for their own account by the depositary or by any third party to whom the custody function has been delegated. Reuse comprises any transaction of assets held in custody including, but not limited to, transferring,  pledging,  selling and lending.

Assets held in custody by the ELTIF’s depositary may only be reused provided  that:

  • the reuse of the assets is executed for the account of the ELTIF
  • the depositary is carrying out the instructions of the manager of the ELTIF on behalf of the ELTIF
  • the reuse is for the benefit of the ELTIF and the interest of the shareholders  or  unit-holders, and
  • the transaction is covered by high quality and liquid collateral received by the ELTIF under a title transfer arrangement with the market value of the collateral having at all times to amount to at least the market value of the reused assets plus a premium.


Our Experience

lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.

This article is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq at for any questions.


1 - The AIFMD defines ‘retail investor’ as an investor who is not a professional investor.
2 - A ‘professional investor’ is an investor which is considered to be a professional client or may, on request, be treated as a professional client within the meaning of Annex II of the MiFID directive.

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