European Long-Term Investment Funds (ELTIF) (Part 1)

Kameido - Hiroshi Yoshida

La versión en castellano de esta entrada se puede ver en este LINK.

With this post, we begin a series dedicated to ELTIF 2.0.

European Long-Term Investment Funds (ELTIF) are a type of investment fund introduced by Regulation (EU) 2015/760 of the European Parliament and of the Council of April 29, 2015, on European long-term investment funds. However, the initial 2015 regulation included rigid rules, making this instrument very exceptional across the EU. It wasn't until the approval of Regulation (EU) 2023/606 of the European Parliament and of the Council of March 15, 2023, which modified the rules governing ELTIFs, that a more flexible and promising vehicle emerged. This new regime is known as ELTIF 2.0, and if market operators become more familiar with its existence and functioning, it could become a widely used investment vehicle in the coming years. It is also worth mentioning that the Delegated Regulation developing the regulatory technical standards (RTS) for ELTIF 2.0 is already in the final stage of approval and publication in the Official Journal of the EU (OJEU). Once published, we will have the complete regulations for this new phase of ELTIFs. It is important to note that even though these RTS are not yet published, ELTIF 2.0 can be used since January 2024.

ELTIFs are a type of closed-end alternative investment fund (AIF), which is an illiquid investment product that, unlike most illiquid funds, can be marketed to retail investors. This is a significant point, but it is also important to note that, despite being closed-end investment funds, liquidity windows can be regulated.

ELTIF 2.0 also offers a wide range of possible investments. Not only do they allow for venture capital and private equity investment strategies, but they also allow investments in real assets of all kinds, such as planes, real estate, energy generation plants, airports, highways, and even debt investment strategies. Another noteworthy point is that ELTIF 2.0 also allows investment in listed companies with a market capitalization of up to €1,500,000,000 (at the moment of investment), which is particularly new for closed-end AIF managers (such as SGEIC in Spain).

One of the few disadvantages that remains from the original 2015 regulation is that this type of vehicle still requires prior authorization for its formation. However, this matter is more theoretical than practical, as other AIFs, such as FCRs in Spain or FCREs in the EU, although they do not require prior authorization, do require prior registration. This does not necessarily lead to a significant difference in setting up the fund. In fact, such funds should be approved by the corresponding authority in maximum just two months.

To conclude this first part of the series, it is also worth mentioning that ELTIFs are one of the vehicles eligible for the new special taxation regime for carried interest in Spain (as we discussed in this previous post on this tax regime). Therefore, Spain may be an attractive place for the sector to establish and manage ELTIF 2.0 that can be marketed across the EU. However, some issues regarding the taxation of the fund (taxes applicable at the level of the product), should be solved in Spain or its use could face relevant problems in comparison with other jurisdictions.