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Magazine Issues » July-August 2022

Legal Ease: Eltifs’ bright future in France

Hong_Ma_and_Stanislas_HaurensEU proposals that should make ELTIF fund structures more accessible could prove particularly helpful for asset managers in France who target retail investors, say Ngoc-Hong Ma and Stanislas Haurens of Linklaters, Paris.

European Long Term Investment Funds (Eltifs) are alternative investment funds benefiting from a marketing passport for both professional and retail investors across the EU and investing in long-term assets subject to specific diversification rules. Designed to channel private savings into long-term investment in the real economy, Eltifs were introduced in 2015. The market has been slow to grow: only 68 have been set up since 2015 in four jurisdictions (Luxembourg, France, Italy and Spain). However, it has been rapidly growing. The volume of Eltif assets was recently estimated to be over €7 billion (compared to around €2.4 billion in 2021).

Proposed amendments
A review process of the Eltif Regulation to foster growth is ongoing. The latest proposal stems from the negotiating position of the Council published in May 2022. In line with recommendations from both national regulators and market associations, the current amendment proposal looks to:

  • increase the access of retail investors to Eltifs by removing the €10,000 minimum investment threshold and the aggregate maximum 10% threshold of the relevant investor’s own financial portfolio and by aligning the specific suitability assessment with the standard MiFID II assessment;
  • impose lighter requirements for Eltifs limited to professional investors, in particular by removing most of the various diversification ratios and increasing the leverage limit for borrowings of cash (from 30% of the Eltif capital to 100%); and
  • generally lower the requirements applicable to Eltifs (limited to professional investors or not) by lowering the minimum investment threshold in eligible assets from 70% to 60%, expanding the possibility of carrying out a fund-of-fund streategy, raising the threshold market capitalisation threshold for eligible portfolio companies (from €500 million to €1 billion), easing the investment by Eltifs in special purpose vehicles, etc.

France’s further incentives
In France, the new Eltif regime could prove to be crucial. Eltifs are the only loan-originating funds that may be marketed to retail investors in France. However, existing entry barriers make it difficult to actually market to retail investors. The removal of these restrictions will make it a very viable option for lending strategies marketed to retail investors.

Similarly, non-Eltif French professional funds authorised to originate loans are limited in their ability to distribute the loans they have granted. Eltifs are not subject to such limits, and together with their future lighter regime, should constitute a very competitive option for professional lending strategies.

Lastly, we note that while the French retail market is mostly accessed through unit-linked life insurance, French insurance law prohibits investment in foreign alternative investment funds through such unit-linked insurance policies. Therefore, setting-up Eltifs in France compared to other EU jurisdictions could prove essential to targeting the French retail market.

Ngoc-Hong Ma is a partner and Stanislas Haurens is an associate in the financial regulation team at Linklaters, Paris

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