What is European Long Term Investment Fund?
Created on 20 April 2015 by the EU, European Long-term Investment Funds (ELTIFs) are the first concrete output from the European Commission’s work on long-term investment.
This new form of long-term vehicle is well-suited for professional and retail investors. Its long-term nature is due to high capital commitments and the length of time required to produce returns.
ELTIFs are governed by two laws:
- Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on ELTIFs, which lays down uniform rules on the authorisation, investment policies and operating conditions of EU alternative investment funds (EU AIFs) or compartments of EU AIFs that are marketed in the Union as European long-term investment funds (ELTIFs).
- Law of 12 July 2013 (transposing directive 2011/61/EU on Alternative Investment Fund Managers into Luxembourg Law), which lays down the rules for the authorisation, ongoing operation and the requirements of transparency of AIFMs established in Luxembourg which manage and/or market AIFs in the European Union.
An ELTIF must invest at least 70 % of its capital in eligible investment assets within a maximum of five years of authorisation. The vehicle can invest up to :
10% of its capital in units of any single ELTIF, EU Social Entrepreneurship Funds (EuSEF) or EU Venture Capital Funds (EuVECA);
10% of its capital in instruments issued by, or loans granted to, any single qualifying portfolio undertaking;
10% of its capital directly or indirectly in a single real asset;
5% of its capital in eligible assets for UCITS, given that those assets have been issued by any single body;
ELTIFS aim to boost EU Long-term investment fund in the real economy by financing projects such as :
- Transport infrastructure
- Social infrastructure (housing or hospitals)
- Sustainable energy generation or distribution
- Roll-out of new technologies and systems that increase energy efficiency
- Further growth of SMEs
As the financial crisis has shown, complementing bank financing with a wider variety of financing sources that better mobilize capital markets could help tackle financing gaps. ELTIFs can play a crucial role in this respect, and can also mobilize capital by attracting third-country investors.
ELTIFs Offer a Steady Income Stream
ELTIFs can provide a steady income stream for entities facing regular and recurrent liabilities and are seeking long-term returns within well-regulated structures: mainly insurance companies, pension administrations, foundations and municipalities. Individual investors may also be attracted by the regular cash flow that ELTIFs can produce. Besides, this vehicle provides capital appreciation over time for investors not receiving steady income stream.