European Commission’s long‐term investment funds proposal meets with scepticism

Exchanges, others react to “ELTIF” plan to boost patient capital

Europe’s proposed “ELTIF” long-term investment funds idea – intended to boost investment in long‐term infrastructure projects to assist with sustainable development – is facing criticism on a variety of fronts.

The European Commission launched the European Long‐term Investment Funds (ELTIF) framework earlier this year, intending to encourage investors to make longer term “patient capital” commitments rather than chasing short-term gains.
The idea is that the new funds would be available to all types of investor, professional and retail, across Europe and managers will have to comply with the Alternative Investment Fund Managers Directive (AIFMD) on investor protection and not the EU’s regular UCITS fund regime.
But the Federation of European Securities Exchanges (FESE), which represents 46 exchanges across asset classes, reckons ELTIFs won’t achieve their purpose as they expressly exclude listed instruments.

“It appears that the European Commission is using the delineation between listed and unlisted instruments as a proxy to distinguish between long‐term assets and others (e.g. because unlisted instruments are deemed to require “patient” capital),” FESE says in a new position paper.

The Brussels-based federation says the ‘long-termism’ of an investment shouldn’t be defined by whether it is listed or not. It argues public listing is an “enabler of investment with a long‐term perspective”.It says 9,200 listed SMEs would be left out under the ELTIF plans and that the definition of listed = liquid and unlisted = illiquid is “too crude”, given that liquidity is concentrated among major ‘blue‐chip’ companies.

“We strongly believe that it would be in Europe’s best interest to also include listed instruments in the new pan‐European investor pools being created by ELTIFs,” FESE concludes.

The exchange group is not alone in querying the ELTIF framework. Gwenola Chambon, Head of Infrastructure Funds at France’s Natixis Asset Management, has also highlighted issues.

It was “very difficult to get the whole thing to work” with regards the proposed funds’ own lack of liquidity and lack of redemption rights, she said at an event organised by Eurosif, the European Partners for the Environment and GLOBE EU earlier this month. There were also no tax incentives unlike UCITS.

She also pointed out that ELTIFs also contain no incentive on environmental, social and governance (ESG) factors. Chambon said: “I don’t understand how we can create such a tool without incentivizing asset managers on ESG. How can we not take into account these considerations?”

She said Natixis is working on structuring long-term investment funds, but not under the new banner: “We feel the ELTIF vehicle as it is is not working for us.”