European regulator ESMA seeking market views on ‘ELTIF’ long-term investment fund regime

Technical standards being developed for ‘patient capital’ structure

European financial regulator the European Securities and Markets Authority (ESMA) is formally seeking views on the regulatory framework for European Long-Term Investment Funds (ELTIFs) – the new structure designed to facilitate investment into companies requiring long-term financial commitments, such as infrastructure or small and medium-sized enterprises.

ELTIFs were first proposed more than two years ago by EU Internal Markets Commissioner Michel Barnier to boost “patient capital” and adopted by the current Commission in April. However, there has yet to be a mandate for an ELTIF.

“The creation of clearly defined ELTIFs will help tackle barriers to long-term investment in, for example, infrastructure projects, thereby stimulating employment and economic growth,” the Commission has said.

The fund structure will only focus on alternative investments that fall within a defined category oflong-term asset classes whose successful development requires a long-term commitment from investors.

The ESMA consultation is seeking views on a number of regulatory technical standards for ELTIFs including how long an ELTIF should run and defining eligible hedging derivatives.

ELTIF regulation restricts the use of financial derivative instruments by ELTIF managers, except where derivative contracts solely serve the purpose of hedging the risks inherent to the investments of the ELTIF.

The consultation is also seeking views on facilities available to retail investors and on the disclosure of costs.

ELTIFs will target both institutional and retail investors in the EU and only focus on investments that fall within a defined category of long-term asset classes, including “real assets” like infrastructure and SMEs.

The consultation ends on October 14. Link