European long-term investment funds: Provisional agreement reached
The EU is making further progress on the capital markets union (CMU), a plan to create a single market for capital in order to get investments and savings flowing across all member states for the benefit of citizens, businesses and investors.
Negotiators from the Council and the European Parliament reached a provisional agreement on the review of the regulation on European long-term investment funds (ELTIF) in order to make these investment funds more attractive.
Together with the European Parliament we have decided to make European long-term investment funds more attractive and easier to invest in. This category of funds is at present largely unknown due to obstacles in its regulatory framework which we have today agreed to remove. One of the key priorities for the Council is now reflected in the text: a redesign of the ELTIF framework which will allow us to channel more financing to SMEs and long-term projects which will help achieve the digital transition.Zbyněk Stanjura, Minister of Finance of Czechia
The ELTIF regulatory framework sets out detailed fund rules on eligible assets and investments, diversification and portfolio composition, leverage limits and marketing. ELTIFs are the only type of funds dedicated to long-term investments that can be distributed on a cross-border basis to both professional and retail investors. However, since the adoption of the regulation in 2015 only a few ELTIFs have been launched due to significant constraints in the distribution process (demand-side) and stringent rules on portfolio composition (supply-side). The ELTIF industry is relatively small and concentrated in a handful of member states. There is an untapped potential to channel more capital towards long-term projects.
Since ELTIFs are designed to channel long-term investments, they are well placed to help finance inter alia the green and digital transitions. They can be an important vehicle for channelling financing to small and medium-sized enterprises (SMEs) and long-term projects such as transport and social infrastructure, sustainable energy generation or distribution, or social infrastructure.
In their agreement, the co-legislators intend to overcome a number of supply-side and demand-side limitations. They clarified in particular the scope of eligible assets and investments, the portfolio composition and diversification requirements, the conditions for borrowing and lending of cash and other fund rules, including sustainability aspects. The package also includes rules to make it easier for retail investors to invest in ELTIFs while ensuring strong investor protection.
Following technical and legal revision, the finalised text will be submitted for the adoption by the Council and the European Parliament.
Background
The Commission presented its Capital Markets Union package including the ELTIF proposal on 25 November 2021. The Council adopted its position on the proposal on 24 May 2022. Negotiations with the European Parliament in order to agree on a final version of the text started on 14 September and ended in the provisional agreement reached today.