Following adoption by the European Commission in July, and a three-month period of scrutiny by the European Parliament and Council, the awaited Commission Delegated Regulation ((EU) 2024/2759) (the “Delegated Regulation“) containing the European Long-Term Investment Fund (“ELTIF“) regulatory technical standards (“RTS“) has today, 25 October 2024, been published in the Official Journal of the EU. The Delegated Regulation shall enter into force tomorrow, 26 October 2024.

The Delegated Regulation supplements the original ELTIF Regulation ((EU) 2015/760), which was amended by Regulation (EU) 2023/606 (commonly known as ‘ELTIF 2.0‘) (together, the “ELTIF Regulation“). The RTS cover a number of key points including the requirements for an appropriate redemption policy and liquidity management tools, and the circumstances for the matching of transfer requests of units or shares of the ELTIF.

Liquidity and Redemption

While to date ELTIFs have been structured as closed-ended funds and therefore have a limited duration, ELTIFs may offer redemption facilities (limited liquidity) under certain conditions. The RTS set down in Articles 4 and 5 the information to be provided to the competent authority of the ELTIF, at the time of authorisation. The ELTIF manager (or “AIFM“) must be able to demonstrate that the ELTIF has in place an “appropriate redemption policy and liquidity management tools that are compatible with the long-term investment strategy of the ELTIF“. Redemptions may not be granted before the end of a minimum holding period (as determined in accordance with Article 3). In addition, the overall amount of redemptions must be limited to a percentage of the ELTIF’s investments which qualify as eligible assets under the UCITS regime.

The RTS sets out in Article 6 the maximum percentage of liquid assets that can be used for redemption requests, which shall be calibrated by the ELTIF manager at its discretion, on the basis of one of two sets of factors set out in the Annexes:

• as a function of the redemption frequency and the notice period of the ELTIF (Annex I )
  • e.g., an ELTIF with a redemption frequency of quarterly and a 3-month notice period, can allow maximum redemptions of 33.3% of eligible assets held on a redemption date, or
• as a function of the redemption frequency and the minimum percentage of eligible assets of the ELTIF (Annex II)
  • e.g., an ELTIF with a redemption frequency of quarterly must have a minimum 20% of assets as eligible assets and can allow maximum redemptions of 50% of eligible assets held on a redemption date. 

Annex I and Annex II contain detailed tables setting out the percentages based on various combinations of the differing factors.

Where redemptions take place more frequently than on a quarterly basis, the AIFM is required to justify to the competent authority of the ELTIF the appropriateness of the redemption frequency and its compatibility with the individual features of the ELTIF. Similarly, where the notice period of an ELTIF is less than 3 months, the AIFM shall inform the competent authority, including reasons for such shorter notice period, and shall explain how that shorter notice period is consistent with the ELTIF.

To determine the maximum size of redemption at a redemption date, the AIFM must apply the percentage of liquid assets that can be used for redemptions (referenced above) to the sum of: (a) eligible assets at the redemption date; and (b) the expected cash flows forecasted on a prudent basis over 12 months.  It is worth noting that if the maximum percentage calculation is based on Annex II of the RTS, the ELTIF is required to maintain a minimum percentage of eligible assets, whereas it is not if the calculation is based on Annex I factors.

While the ELTIF Regulation does not specify the length of the minimum holding periods, it does require that the AIFM determines the minimum holding period based on certain criteria, which are now set down in Article 3 of the RTS.

In addition, the RTS and its Annexes include:

• circumstances in which the use of derivatives for hedging purposes is considered as solely serving the purpose of hedging investment risks
• circumstances in which the life of an ELTIF can be considered compatible with the life cycles of its individual assets
• the policy requirements for the full or partial matching of transfer requests by exiting and new investors
• the calculation methodologies and presentation of costs of the ELTIF

Central Bank Approach

The Central Bank’s ELTIF framework was established earlier this year for the authorisation of closed-ended ELTIFs. Last month, the Central Bank confirmed that it is was in the process of updating its application forms to be in a position to process applications for open-ended ELTIFs once the RTS were finalised. Today the Central Bank updated its ELTIF Application Form to include open-ended ELTIFs with limited liquidity.

For more on ELTIFs, see our previous briefing here.