The consultation period on the draft Regulatory Technical Standards under the revised Eltif regulation has come to an end. Do you expect any significant changes to result from the comments submitted to ESMA?
. – “It is difficult to predict what the final position of ESMA will be. However, we understand that a number of market players have advocated for additional flexibility regarding minimum holding periods – the proposal mentions three years – as well as minimum redemption frequencies, the minimum amount of liquid assets and the minimum notice period for redemptions, for which the proposal suggests 12 months which is seen as too long.
Ideally, these minimums would be left to the appreciation of the asset manager, based on the nature and liquidity of the fund, whilst of course being ultimately reviewed and approved by the relevant national competent authority.
There is also hope that a nuanced approach will be adopted around costs disclosures. For instance, it may not be appropriate to consider distribution costs and costs relating to the acquisition of assets as one-off costs for an evergreen fund, as these costs may rather be of a recurring nature and will be difficult to predict at inception.
It would also be helpful to have some convergence and common approach in relation to the Eltif costs ratio and the costs disclosed as per the PRIIPs Regulation, as this may be confusing to investors.
How much of an advantage does Luxembourg have with regard to the creation of Eltifs?
“Luxembourg has been a well-established fund centre for over 30 years with a reputation for attracting large cross border investment platforms and reputable prominent fund and asset managers. The long-term stability of the country and ecosystem, coupled with a robust regulatory framework, a credible and reputable regulator and a flexible company law regime are among its key advantages.
Luxembourg has historically catered to the needs of the funds industry spanning from back-office to front office services. Luxembourg’s international and multilingual workforce – English is widely spoken – has helped attract local AIFMs (Alternative Investment Fund Managers) and third-party service providers.
Driving and implementing innovation is an ongoing strategy of Luxembourg’s fund industry. It is continually reviewing its legal and regulatory framework and expanding its toolbox of products and services in an attempt to maintain a place at the forefront of fund management.
Luxembourg is already the primary domicile for Eltifs in the EU, accounting for approximately 60% of the market. Luxembourg Eltifs, unlike those created in other jurisdictions, are not only being created for the local market but to be distributed on a pan-European basis and beyond the EU. The CSSF and Luxembourg service providers are therefore well acquainted with the product. So, Luxembourg is a very attractive jurisdiction for new ELTIF players.
Could proposed changes to the AIFMD framework, especially the potential possibility to passport loan originating activity, weaken the attractivity of Eltifs?
“The AIFMD 2 indeed proposes that EU loan origination funds managed by full-scope EU AIFMs should have the benefit of a loan origination “passport”, permitting them to lend to non-retail borrowers throughout the EU. Up to now, this had not been allowed for AIFs.
This goes further than the Eltif regulation, which is more restrictive in relation to the ability of ELTIFs to lend to financial undertakings.
However, this proposal does not solve the issue of the marketing of AIFs in the EU. ELTIFs still have the advantage of benefiting from a marketing passport allowing the marketing to non-professional investors which is not available under the AIFMD framework and which is something that will not change with AIFMD 2. ELTIFs will therefore continue to be attractive.
However, AIFs that do not have the Eltif label will continue to have their role to play as not all investment strategies will be able to be implemented within an Eltif, such as funds of funds structures with non-EU funds.”
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