Further clarifications on the ELTIF regime

The EU Commission published several answers concerning the amended Regulation (EU) 2015/760 (ELTIF Regulation) and thereby clarified a number of questions raised by national competent authorities during the adoption process of Commission Delegated Regulation (EU) 2024/2759 (ELTIF 2.0 regulatory technical standards). The EU Commission’s responses can be found on ESMA’s website under its Q&A tool.

The EU Commission’s long-awaited answers clarified, among others, the following points:

• Member States may not add any further requirements in the field covered by the ELTIF Regulation. Article 1(3) of the ELTIF Regulation prohibits Member States from introducing requirements pertaining to the domiciliation or establishment of master or feeder ELTIFs. Member States may not impose requirements pertaining to the nationality, domiciliation or location of the ELTIF or its manager, including for ELTIFs packaged in insurance products or embedded in pension/savings plans, as an ELTIF authorisation is valid for all Member States.
• Investments via the participation of intermediary entities. Investment decisions by ELTIF managers may be executed through intermediary entities, such as SPVs, securitisation or aggregator vehicles, or holding companies. Portfolio composition and diversification must be assessed by looking through (i.e. disregarding) such intermediary vehicles, as these are not themselves investments but rather vehicles used to hold, facilitate or channel the ELTIF’s actual investments into ELTIF eligible investment assets. Intermediary vehicles should not automatically be considered as AIFs, and intermediary entities are not required to qualify as “qualifying portfolio undertakings”.
• Compliance with the portfolio composition and diversification requirements, in particular for open-ended ELTIFs which raise or reduce capital. The requirements of Articles 16(4) and 17(1)(c) of the ELTIF Regulation apply to all ELTIFs, irrespective of whether they are closed-ended or open-ended, with conditions calibrated as appropriate for the type of ELTIF in question. Portfolio composition and diversification requirements may be temporarily suspended where the ELTIF raises additional capital or reduces its existing capital, but this suspension must last no longer than 12 months. During such suspensions, ELTIF managers should take necessary measures to comply with requirements and not take actions to further increase borrowing or concentration of exposures.
• Setting and disclosure of the percentage of liquid assets to be used for redemption requests. A minimum percentage of liquid assets is not required by the ELTIF Regulation, except where the ELTIF manager has selected to calibrate the percentage based on Annex II of the Delegated Regulation, in which case the minimum percentage should be disclosed in the redemption policy. ELTIFs can set a lower percentage of liquid assets than the maximum percentage referred to in Annexes I or II.
• Application of the minimum holding period, including minimum holding periods during which investors cannot benefit from distribution. ELTIF managers have discretion to apply the minimum holding period either in relation to the launch date of the ELTIF for all investors, or at each new subscription based on the date of each capital contribution, subject to relevant disclosure requirements and fair treatment of investors. ELTIFs may define a minimum period before which shares cannot benefit from distributions, subject to transparency requirements regarding the frequency and timing of distributions. Setting a minimum holding period during which investors cannot benefit from distributions is not considered a “fee” or “cost” within the meaning of Article 25 of the ELTIF Regulation.
• Minimum liquid asset requirements. ELTIFs that have selected Annex II to calibrate the percentage of liquid assets must comply at each redemption date with the minimum level of liquid assets, though this can temporarily fall below the threshold under strict conditions. If liquid assets fall below the threshold, the ELTIF manager shall take necessary measures to reconstitute the minimum percentage within a period appropriate for that ELTIF, whilst maintaining the ability of investors to redeem their units or shares.
• The compatibility of daily redemption and valuation requests with the ELTIF regime. The ELTIF Regulation does not prevent an ELTIF manager from setting a redemption frequency that is more frequent than weekly, including daily redemptions, as both Annexes I and II refer to weekly/monthly “or more frequent” redemptions. When determining redemption frequency, managers must ensure that the ELTIF’s investment strategy aligns and is consistent with its liquidity profile and redemption policy.