After a long gestation period and a rather controversial discussion between the European regulator ESMA and the European Commission, last Friday the latter released the final text (link in the comment section) of the regulatory and technical standards (RTS) that supplement the new regime of the European long term investment fund (ELTIF).
[The ELTIF is an investment vehicle that allows retail investors easier access to illiquid assets such as real estate, infrastructure, private equity or private debt, and which can be distributed, after having been established, by way of a simple notification procedure within the European Union, which is also referred to as a "passport".]
The RTS sets out rules, in particular, for how open-ended ELTIFs should work, i.e. those from which investors can request to exit. First drafts had set out rather prohibitive rules that would not have worked well in practice, with large portions of very liquid assets prescribed for such products. While the final version of the RTS is, in my own and very subjective view, still far too complicated and micro-managing, it certainly is an improvement over the previous proposals. Most notably, managers will now have much more choice as to how they manage the liquidity situation for such open-ended structures (either with liquidity pockets or other measures such as gates or extended redemption periods), or which liquidity management tools they use.
With the uncertainty about the RTS content now gone, and the rules being somewhat more flexible than initially feared, this is certainly a positive development for ELTIFs. It remains to be seen whether this will result in a significant increase of the market share for such product – most of which are established in Luxembourg.
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