European pension trade body wants major rethink of EU long-term investment funds

The European pensions industry trade group PensionsEurope has called for what amounts to a major re-think of the new European Long-Term Investment Fund (ELTIF) vehicle that was designed to attract “patient capital”.
The European Commission launched the ELTIF framework earlier this year, hoping to encourage investors to make longer term “patient capital” commitments.
It’s hoped the 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 PensionsEurope, whose member bodies across EU member states represent around €3.5trn of assets, while welcoming the debate on long-term investment prompted by the European Commission’s Green Paper on long-term financing, has identified a series of problems with the ELTIF proposal as it stands.

In particular, the application of solvency rules could limit what in European jargon are called IORPs (Institutions for Occupational Retirement Provision) from investing in the new funds due to their illiquidity, PensionsEurope warns. It wants redemption rules to be more flexible.“Many IORPs will refrain from investing in such funds if capital is fully locked away for a very long period,” the Brussels-based group says in a new position paper.

It is also calling for two different types of ELTIF, to cater for institutional and retail investors separately.
And, picking up a point made by the Federation of European Securities Exchanges (FESE) that ELTIFs shouldn’t exclude listed companies, PensionsEurope argues it should be possible for the funds to invest in listed small and medium-sized enterprises (SMEs).
It would also like greater involvement of the European Investment Bank and other institutions. The EIB’s Project Bonds Initiative “should be directly linked” to ELTIF, with the EIB providing guarantees.

The tax treatment of ELTIFs is another area of focus for PensionsEurope, as is the fact they aren’t subject to the UCITS directive.

PensionsEurope is not the first to be critical of the ELTIF idea. On top of the FESE criticisms, France’s Natixis Asset Management, has also highlighted a range of issues, as reported by RI. EFAMA, the European Fund and Asset Management Association, has also called for changes to ELTIFs such as the setting of a minimum 10-year lifetime. Link