EUROPEAN COMMISSION Brussels, 25.11.2021 SWD(2021) 342 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2015/760 as regards the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules and as regards requirements pertaining to the authorisation, investment policies and operating conditions of European long-term investment funds {COM(2021) 722 final} - {SEC(2021) 571 final} - {SWD(2021) 343 final}



Table of Contents List of Tables and Figures Glossary 1.Introduction: Political and Legal Context 1.1.Background 1.2.Political and legal context 2.Problem definition 2.1.Evaluation 2.2.Problem tree overview 2.3.Problems 2.4.Problem drivers 2.5.Consequences 2.6.Potential problem evolution without EU action: the baseline scenario 3.EU’s Right to Act and Justification 3.1.Legal basis 3.2.Subsidiarity: Necessity of EU action 3.3.Subsidiarity: Added value of EU action 4.Objectives: What is to be achieved? 4.1.General objectives

4.2.Specific objectives 5.Available Policy Options and Impact 5.1.Baseline from which options are assessed 5.3.Options discarded at an early stage 6.How do the options compare? 6.1.Greater flexibility in the ELTIF regime for professionals-only ELTIFs 6.2.Removing the restrictions for the access by retail investors 6.3.Comparison of options on the redemption regime 7.Preferred Options and Impacts of the Proposed Policy Options 7.1.Preferred options 7.2.Estimated impacts 8.REFIT (simplification and improved efficiency) 9.Monitoring and evaluation ANNEX 1: Procedural Information ANNEX 2: Stakeholder consultation ANNEX 3: Who is affected by the initiative and how ANNEX 4: Methodological approach, analytical methods and limitations ANNEX 5: Evaluation of relevant provisions of the ELTIF Regulation Annex 6: Statistical Data on the ELTIFs Annex 7 Analysis of fund rules not covered by the Impact Assessment

List of Tables and Figures TABLE 1 – Evaluation of the ELTIF regime (key findings)………………………………….... 9 GRAPH 1 – Problem tree………………………………………………………………………. 11 GRAPH 2 – General and specific objectives ………………………………………………….. 21 TABLE 2 – Policy options assessing the application of the fund rules to all investor categories …………………………………………………………………………………….... 27 TABLE 3 – Policy options assessing the specific requirements concerning reduction of ELTIF barriers to participation of retail investors………………………………………….. 28 TABLE 4 - Policy options assessing the redemption policy and life-cycle of ELTIFs……….. 30 TABLE 5 - Greater flexibility in the ELTIF regime for funds marketed only to professional investors (summary of impacts)……………………………………………………………….. 36 TABLE 6 - Removing the restrictions for the access by retail investors (summary of impacts)………………………………………………………………………………………... 38 TABLE 7 - Optional liquidity windows redemption mechanism……………………………... 41



Glossary Term or acronym Meaning or definition AIF or AIFs Alternative Investment Funds AIFM or AIFMs Alternative Investment Fund Manager AIFMD Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers AMF Autorité des Marchés Financiers AuM Assets under management CMU Capital Markets Union CNMV Comisión Nacional del Mercado de Valores Consob Commissione Nazionale per le Societa e la Borsa CSSF Commission de Surveillance du Secteur Financier ELTIF or ELTIFs European long-term investment fund(s) ELTIF Regulation Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (OJ L 123, 19.5.2015, p. 98) ESMA European Securities and Markets Authority EuSEF European Social Entrepreneurship Fund EuVECA European Venture Capital Fund FISMA Directorate-General for Financial Stability, Financial Services and Capital Markets Union HLF High-Level Forum on the Capital Markets Union KID Key Information Document MiFID II Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (OJ L 173, 12.6.2014, p. 349, as amended) MiFIR Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (OJ L 173, 12.6.2014, p. 84, as amended) NAV Net Asset Value NCA or NCAs National Competent Authority(ies) PRIIPs Packaged Retail Investment and Insurance Products PRIIPs Regulation Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (OJ L 352, 9.12.2014, p. 1, as amended) Professional investor An investor which is considered to be a professional client, or may, on request, be treated as a professional client in accordance with Annex II to Directive 2014/65/EU (Article 2(2) of the ELTIF Regulation) Retail investors An investor who is not a professional investor (Article 2(3) of the ELTIF Regulation) UCITS Undertakings for Collective Investment in Transferable Securities UCITS Directive Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32, as amended)



1.Introduction: Political and Legal Context

1.1.Background Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (hereinafter: ELTIF Regulation) is a European framework for Alternative Investment Funds (AIFs) that invest in long-term investments, such as infrastructure projects, real estate, listed and unlisted SMEs. The ELTIF Regulation establishes uniform rules on the authorisation, investment policies and operating conditions and marketing of ELTIFs. The ELTIF regime is intended to facilitate long-term investments in these types of assets by institutional and retail investors and provide an alternative, non-bank source of finance to the real economy. Such long-term finance can support the development of the European economy along the path of smart, sustainable and inclusive growth. Since the adoption of the ELTIF legal framework in April 2015, only a limited number of ELTIFs have been launched with a relatively small amount of net assets under management (total assets under management are estimated at approximately EUR 2.4 billion in 2021). As of October 2021, ESMA’s register of ELTIFs listed 57 authorised ELTIFs and these funds were domiciled in only four Member States (Luxembourg, France, Italy and Spain), while the remaining Member States had no domestic ELTIFs (for more detailed information on the ELTIF market see Annex 6). While the ELTIF is still a relatively new framework, the available market data indicates that the development of the market has not scaled up as expected, particularly given the Commission’s objective of promoting long-term finance in the EU as part of the CMU. An evaluation of the framework in Annex 5 concludes that there is a need for a targeted review of certain legal and policy elements of the ELTIF framework. Since the publication of the first Capital Markets Union (CMU) Action Plan in 2015, a number of actions have been taken in the context of developing more long-term sources of funding in the EU. But it has become apparent that further policy interventions are necessary to ensure that more investments are channelled to businesses in need of capital and to long-term investment projects, particularly during the recovery from the Covid-19 pandemic. This review aims to increase uptake of ELTIFs across the EU for the benefit of the European economy and investors. This, in turn, would support the continued development of the CMU, which also aims to make it easier for EU companies to access more stable and diverse long-term financing. The European Commission Green Paper on Long-term Financing of the European Economy also revealed that Europe needs to promote more smart, sustainable and inclusive growth, creating jobs and enhance its global competitiveness. This priority was further supported by the Commission’s Mid-Term Review of the CMU Action Plan, which determined that the EU has been suffering from a chronic lack of long-term financing for SMEs when compared to other major economies. To fund long-term investments in the European economy, governments and businesses need access to predictable long-term financing. The availability of such financing depends on the ability of the financial system to channel the savings of governments, corporates and households safely and efficiently to the right investments through open and competitive markets. ELTIFs have a crucial role to play in this area by providing a dedicated investment product to mobilise capital for the financing of projects such as transport infrastructure, sustainable energy generation or distribution, social infrastructure (such as housing for seniors or hospitals), new technologies and systems that reduce the use of resources and energy and further growth of Europe’s SME sector. The Commission conducted an open public consultation (see Annex 2) and a number of targeted consultations with a wide range of stakeholders to assess the functioning of the ELTIF framework (see sources and evidence used in the impact assessment in Section 5 of Annex I). These consultations allowed the Commission to explore with those stakeholders a range of possible policy options to tailor and, where appropriate, amend the provisions of the ELTIF Regulation. This impact assessment identifies a number of barriers and limitations in the current framework that have limited the market’s uptake of the ELTIFs and an assessment of the identified options to address these issues.

1.2.Political and legal context In June 2020, the High Level Forum (HLF) on the Capital Markets Union (CMU) published its final report that contained 17 recommendations aimed at removing barriers in the EU’s capital markets, including a recommendation for the targeted review of the ELTIF Regulation. According to the report, a review of the ELTIF regime with targeted amendments could accelerate the uptake by investors with a long-term investment horizon and increase the flow of long-term financing to the real economy. Furthermore, the Commission’s revised CMU Action Plan explicitly recognised the need to further support investment vehicles that channel financing to long-term investment projects. In the Action Plan, the Commission committed to review the legislative framework for ELTIFs. It should be noted that the review of the ELTIF framework has strong links with the CMU, the European Green Deal, European Energy Union and other Union policy initiatives, including the recovery from the Covid-19 pandemic. Against this background, on 2 December 2020, the Council of the European Union in its conclusions urged the Commission to review the ELTIF regime. The ELTIF regime is also closely linked to Alternative Investment Fund Managers Directive 2011/61/EU (the AIFMD) since the AIFMD forms the legal framework governing the management and marketing of alternative investment funds (AIFs) in the Union. By definition, ELTIFs are EU AIFs that are managed by alternative investment fund managers (AIFMs) authorised in accordance with the AIFMD. As a result, the rules applicable to ELTIF managers are set out and governed by those in the AIFMD. Given the inter-linkages of the ELTIF Regulation with the AIFMD framework, it is also important to note that in addition to this ELTIF review, the Commission is also reviewing the AIFMD. It is anticipated that both proposals will be adopted simultaneously. Further information on the linkages between the two frameworks is set out in Section 2.3. of Annex 5. The requirement to review the functioning of the ELTIF framework is mandated by the co-legislators in Article 37 of the ELTIF Regulation, which requires the Commission to review the functioning of the ELTIF framework. Following the review and after consulting ESMA, which was completed in February 2021, the Commission is also required to submit to the co-legislators a report assessing the contribution of the ELTIF Regulation to the completion of the CMU and, if appropriate, present a legislative proposal. 2.Problem definition 2.1.Evaluation From the EU acquis perspective, ELTIFs are a sub-segment of AIFs and are subject to the rules of the AIFMD framework in addition to the requirements of the ELTIF framework. The ELTIF is a voluntary regulatory regime and asset managers can choose among a range of structures when establishing their funds. Compared to these alternative AIF structures, the ELTIF regime has certain advantages. First, it is a fully harmonised European label for financial products, which allows for an EU-wide passport-based marketing to both professional and retail investors. In comparison, AIFs under the AIFMD can only be passported to professional investors and marketing to retail investors is subject to national rules. The ELTIF fund rules can also offer the capacity to withstand market volatility due their closed-ended nature and in certain cases preferential national tax treatments for ELTIF investors. ELTIFs can also represent a safer pathway for investors interested in private equity investments but present a lower risk profile than pure private equity funds.

Nevertheless, the advantages of ELTIFs are diminished by the restrictive fund rules and barriers to entry for retail investors, the combined effect of which reduce the utility, effectiveness and attractiveness of the ELTIF regime for managers and investors. Based on the evaluation of the functioning of the ELTIF regime (see Annex 5) and stakeholders’ feedback, these restrictions are the key drivers of the ELTIFs failure to scale up significantly and reach their full potential to channel investments to the real economy. As of October 2021, ESMA’s register of ELTIFs has recorded only 57 ELTIFs. The approximate total ELTIF AuM across Europe only amounted to approximately EUR 2.4 billion, representing a tiny fraction of the total EU AIFs market (EUR 6.8 trillion as at the end of 2020). As of May 2021, French and Luxembourg ELTIFs held the vast majority of the total AuM, to EUR 1.2 billion and EUR 950 million respectively. For Italian ELTIFs this amount was equal to EUR 222 million and for Spanish ELTIFs only EUR 28 million (see Annex 6 for more information on the ELTIF segment). Based on the data available in the AIFMD database and additional analysis of ELTIF portfolio composition by ESMA as of February 2021, 60% of the total AuM was invested in loans granted to qualifying undertakings, and roughly 11% of the total AuM was invested in equity and 6% in non-investment grade corporate bonds. The rest was made up by cash and cash equivalents, including in foreign currencies for hedging purposes. As of April 2021, all ELTIFs were domiciled in only four Member states (France, Luxembourg, Italy and Spain). While some ELTIFs were marketed in more than one Member State, most ELTIFs were solely marketed in the Member State of their domicile (see Annex 6). Certain characteristics of the above description of the ELTIF market (i.e low number of funds, small net asset size, few jurisdictions in which ELTIFs are domiciled, portfolio composition largely skewed towards only one eligible investment category) demonstrate the concentrated nature of the market both geographically and in terms of investment type. While there are indications of recent growth in the number of registered ELTIFs, albeit from a low basis from mid-2019 to mid-2021 (the recent growth in the number of new ELTIF authorisations is attributed to Italy (11 new ELTIFs), France (5 new ELTIFs) and Luxembourg (7 new ELTIFs)), however, this recent activity is not indicative of broader market use of the ELTIF and remains below the desired level. For that reason, it is important that the ELTIF review address the range of issues identified by stakeholders to encourage greater market take-up of these funds. The current sub-scale nature of the ELTIF market also exhibits significant unlocked potential in the legal framework with a view to effectively contributing to the real economy and the development of the CMU. The following table below summarises the main findings of the evaluation of the ELTIF regime with a clear focus on the answers to the evaluation questions: Table 1 – Evaluation of the ELTIF regime (key findings) Questions Summary of the evaluation Q 1 How effective has the EU intervention been? The objectives of the ELTIF Regulation to establish a single market for ELTIFs has not been achieved entirely. The market remains underdeveloped. The EU ELTIF regime has not achieved its full potential to become a fund vehicle of choice for financing long-term projects in Europe. Q 2 How efficient has the EU intervention been? ELTIF rules regarding the establishment and the marketing of ELTIFs have proved to be generally cost-effective. However, the one-size-fits-all approach to the fund rules for both retail and institutional investors combined with overly restrictive fund rules limit the utility of ELTIFs. Q 3 How relevant is the EU intervention? The original rules remain relevant and provide for a strong legal foundation for a well-regulated and transparent legal regime for a passportable financial product available to both professional and retail investors. The original objectives of the ELTIF Regulation correspond to the current needs within the EU (financing of long-term projects) but require recalibration on the fund rules side. Q 4 How coherent is the EU intervention? The rules set out in the ELTIF Regulation are coherent with other pieces of EU legislation. ELTIFs are a sub-set of AIFs which links ELTIFs to the AIFMD framework. Q 5 What is the EU-added value of the EU intervention? The clear added value of the ELTIF Regulation is to realise its full potential to channel finance to long-term projects and meeting the needs of retail and professional investors while enabling the cross-border marketing of funds that are well-suited for a range of long-term projects.

Additional information on the evaluation of the functioning of the ELTIF framework could be found in Annex 5 hereto. Annex 2 sets out the stakeholder feedback in detail. This feedback highlights market concern at the overly restrictive provisions in the ELTIF framework that limit its effectiveness and utility for both retail and professional investors to access ELTIFs. In particular, the barriers to entry for retail investors and the exposure thresholds have proven to be overly restrictive and prevent the average retail investor from accessing ELTIF products. In addition, overly restrictive fund rules limit the available investment universe, fund structures and available strategies. Some of these restrictions limit the ability to develop strategies for ELTIFs and access a sufficient range of eligible investments. 2.2.Problem tree overview Since the global economic and financial crisis, the EU has suffered from low levels of investment, in particular sources of long-term capital. The ELTIF regime is uniquely positioned to provide this type of financing given the current low to negative interest rate environment, the resilience of ELTIFs to liquidity shocks as experienced in 2020 and the need to deploy capital and savings into less liquid assets to support the real economy, fund large infrastructure projects, create employment and support the shift to carbon neutral economies by investing in new technologies and green power generation. At the same time, the economic impact and cost of the Covid-19 pandemic have reduced the capacity for government spending in these areas creating an opportunity for ELTIFs to step into this space and provide market financing to support these projects. However, the market for ELTIFs has failed to scale up significantly since the entry into force of the Regulation. With only 57 authorised ELTIFs managing approximately EUR 2.4 billion in assets and despite being a relatively recent framework, it is evident that the ELTIF regime has failed to achieve mainstream market appeal and realise its full potential to channel capital financing to long-term investments in the EU. In its current state, the ELTIF is also not supporting to the extent possible the development of the CMU, the European Green Deal and the pandemic recovery. While a certain degree of new market growth as set out above has been identified (see Annex 2), the ongoing lack of significant market development and the limited offering of ELTIF products necessitates further examination to determine its causes and identify potential solutions to improve market adoption of ELTIFs by both fund managers and investors. The following problem tree summarises the problem drivers, problems and consequences under consideration: Graph 1 – Problem tree In line with the problem tree, the section below summarises and presents the problems faced in the context of the ELTIF regime by asset managers, as well as by investors. 2.3.Problems

The core problem is the failure of the market for ELTIFs scale up both in terms of the number of funds and in terms of net assets. The low uptake by fund managers limits the contribution of the ELTIF to the real economy and the goals of the CMU while investors may not be able to access long term investment products that meet their financial needs. The skew in the overall portfolio allocation by ELTIFs exposes the problem that – by deduction - certain eligible assets, such as real assets or other eligible investment funds (ELTIFs, EuSEFs and EuVECAs) are virtually not represented among those eligible assets in which ELTIFs may invest. In this context, ELTIFs co-exist in parallel to other EU investment funds frameworks, including the AIFs managed by the AIFMs, national fund vehicles regulated under national laws of the EU Member States, and partially with EuVECAs and EuSEFs and even the private equity investments used for structuring certain long-term projects. The potential attractiveness of other legal fund frameworks, as well as the sub-optimal functioning of the ELTIF framework is linked to the insufficient interest among asset managers in establishing ELTIFs. Given the overly restrictive fund rules and the burden of the entry barriers for retail investors, managers may choose to use AIFs even though the ELTIF offers certain distinct advantages over those funds. These advantages are outweighed by the limitations of the framework. 2.4.Problem drivers 2.4.1. Demand-side drivers The key demand-side driver is that ELTIF rules impose restrictions making it difficult and less appealing for both retail and professional investors to access ELTIFs. The analysis of the functioning of the ELTIF Regulation (see the evaluation in Annex 5) has exposed specific ELTIF rules that contain explicit limitations that have the effect of dissuading investments by retail investors. The current ELTIF rules create significant barriers to entry for retail investors, such as the need to clarify the ELTIF requirements for the assessment of retail investor’s knowledge and experience and align with the requirements in MiFID II framework. Current provisions of the Regulation notably require fund managers to assess whether the ELTIF is suitable for marketing to retail investors and conduct a suitability test to assess the retail investor's knowledge and experience, general financial situation and their investment objectives The EUR 10,000 minimum initial investment participation (the so-called “entry ticket”) and the 10% limitation on aggregate investment for investors whose portfolio does not exceed EUR 500,000 required by the ELTIF Regulation constitute a tangible barrier to the access of retail investors. It should also be noted that the 10% threshold is applied on an aggregate level. This means that the total (aggregate) amount allocated by retail investors to ELTIFs, as part of their financial portfolio, should not exceed 10% of the investor’s portfolio. The ELTIF Regulation justifies the existence of such thresholds and limitations with the imperative of strengthening the protection of retail investors (see Recital 46 of the ELTIF Regulation).

It should, however, be recognised that both the EUR 10,000 minimum entry ticket in combination with the 10% aggregate maximum exposure while ostensibly for investor protection represent a significant obstacle for the average retail investor and conflict with the original goal of the ELTIF to establish a retail AIF product. Investors face the disproportionately high hurdle of investing a considerable amount of one’s disposable income, relative to one’s savings, into one illiquid financial product which cannot be redeemed over a long period of time. Even where an investor can invest EUR 10,000 to an ELTIF, investing in other ELTIFs would prove more difficult given the application of the minimum entry ticket in conjunction with the 10% aggregate threshold. 2.4.2. Supply-side drivers The key supply-side problem drivers are overly restrictive fund rules that limit the available investment universe, fund structures and available investment strategies. Such restrictive provisions in the ELTIF framework reduce the attractiveness for asset managers for establishing ELTIFs as indicated in the evaluation and stakeholder feedback. A fund manager’s decision to establish, market and manage an investment fund is influenced by market-driven considerations (such as the attractiveness of the local market, prospective investor demand, availability of eligible assets, distribution networks, etc.) and regulatory considerations (choice of the jurisdiction of domicile, fund rules, jurisdictions where the fund will be marketed, etc.). In particular, when asset managers decide on the choice of the legal framework for the incorporation of the investment fund they consider, among other factors, to what extent the underlying fund rules are well-adapted to support the purported investment strategy pursued by the asset manager. This flexibility of fund rules should ideally allow asset managers to pursue different investment strategies across a variety of asset classes. However, every investment strategy and every investment project will have its unique characteristics, maturity profile, risk and reward profile and would often require distinct fund rules adapted to specific circumstances, identified investor demand, expected liquidity profile and other investment factors. In this connection, as the evaluation confirms, the fund rules set out in the ELTIF regulatory regime appear to be excessively restrictive and prevent managers from pursuing a wider range of existing investment strategies that could otherwise be used to channel financing into long-term investment projects. In particular, certain ELTIF rules contain strict limitations that make the functioning of the ELTIFs inefficient, impracticable or unviable and in certain cases less attractive for the investment manager than the readily available AIF structures. Stakeholders have highlighted these issues with the functioning of the ELTIF framework through the open public consultation (see Annex 2) and during subsequent bilateral consultations with a wide range of market participants and NCAs. Whilst different types of stakeholders prioritise the importance of different fund rules, the most important factors appear to focus on the outright limitations in the scope of eligible assets and investments, restrictive fund rules on the borrowing of cash, and requirements regarding diversification and portfolio composition requirements and concentration limits (see the evaluation of the ELTIF Regulation, Annex 5). A fund manager’s decision to establish, market and manage an investment fund is equally influenced by the category of investors to which units or shares of ELTIFs can be marketed. These considerations are important for AIFMs because they may determine their market potential, the level of investor demand for the product, its marketing strategy, the optimal portfolio composition and costs associated thereto. The fund structure (vis-à-vis eligible investors) will also determine distribution-related aspects and other applicable regulatory requirements, such as the possibility for a two-week withdrawal window for retail investors and the requirement to provide a Key Information Document (KID) for retail investors. In this connection, it should be noted that the ELTIF Regulation applies the same fund rules for both professional and retail investors including restrictions on the use of leverage, diversification and portfolio composition requirements, concentration rules and limits on the eligible assets and investments. This means that all AIFMs when choosing the ELTIF structure as a possible vehicle of choice for setting an investment vehicle must comply with a “one-size-fits-all” set of fund rules irrespective of the targeted client group, preferred investment strategy, and the risk profile of the underlying portfolio assets.

Same fund rules for both professional and retail investors seem to serve a very distinct category of investors with different time horizons, risk tolerance and investment needs, which may be seen as impairing the ability of managers to offer tailored products. In addition, the participation of retail investors in an ELTIF may often lead to higher administrative burdens and associated costs for ELTIF managers compared to those ELTIFs that can be solely marketed to professional investors. While these burdens may appear to be largely administrative and compliance-driven (a requirement to publishing a Key Information Document under the PRIIPS Regulation, a 2-week withdrawal right without a penalty, extra procedures and staff to deal with any complaints by retail investors, a requirement for the nomination and contract documentation with a depositary, etc.), these fund rules have been consistently flagged to the Commission services as detracting from the attractiveness of ELTIFs when the intention is to only market to professional investors. 2.4.4. Out-of-scope problem drivers There are other significant problem drivers that impact on the attractiveness of ELTIFs but that are outside of the scope of the Commission’s review. Taxation barriers are out of scope of this initiative as these would need to be addressed on a different treaty base and are the subject of other Commission work streams. This includes the work with national tax experts, which has led in 2017 to the publication of a Code of Conduct on Withholding Tax on more efficient withholding tax relief and refund principles as part of the CMU Action Plan. The High-Level Forum on the CMU has explicitly addressed taxation related concerns in its recommendations in relation to the ELTIF review. The HLF on CMU also recommends (see Recommendation 15) to introduce a relief at source system for withholding tax procedures at EU level in the same vein as the Action Plan for fair and simple taxation supporting the recovery strategy. However, the Report has explicitly acknowledged that taxation related issues must be solved at national level. Despite the fact that tax-related issues fall outside the scope of the ELTIF review initiative, it could be considered that national taxation plays a relatively important, albeit a non-decisive role in the uptake of ELTIFs in general. Taxation-related aspects are analysed by asset managers amongst many economic, regulatory, financial, accounting and marketing considerations. The presence of tax incentives, when taken in aggregate, may lead to a specific feature design or marketing to a specific category of investors who may find it attractive to invest in a product due to a combination of economic, financial and investment aspects. The design of financial products is very rarely dictated solely by tax-related considerations. It is difficult to quantify exactly the relative role of national taxation in the growth potential of the ELTIF market as a sub-segment of AIFs. However, as part of its 2019 ‘Growth Decree’, Italy introduced a range of tax measures to support investment and increase the access of Italian companies to alternative sources of finance, particularly through ELTIFs. Despite the growth of Italian ELTIFs from two funds in the beginning of 2020 to 13 ELTIFs in mid-2021, it remains difficult to conclude with certainty if there is a legitimate or only circumstantial causal link between the Growth Decree and the growth of the Italian ELTIF industry. Against this background, and in the absence of the legal mandate to propose measures in the taxation area under Article 144 of the Treaty on the Functioning of the EU, the ELTIF review cannot propose any measures on tax-related issues. Solvency II rules and prudential treatment of ELTIFs – During the open public consultation several stakeholders advocated for a review of the Solvency II rules. In addition, the High-Level Forum on the CMU report recommended the promotion of institutional investor take up and to “consider explicit recognition of the ELTIF in relevant capital frameworks (e.g. Solvency II for insurers), and provide appropriate flexibility for investment strategies attractive to institutional investors to be addressed within the ELTIF framework”. This topic is beyond the scope of the ELTIF Regulation, and can only be appropriately addressed in the context of the review of the Solvency II framework and other EU legal acts governing the prudential treatment of certain assets (also see Section 2.3. of Annex 5). These topics are also being discussed, in parallel, at the level of the European Supervisory Authorities.

Investors’ behaviour – The broader issue of (retail) investors' behaviour is out of scope as this cannot be addressed through this targeted initiative. Economic research has demonstrated that fund investors are subject to several behavioural biases, including home and familiarity bias. It has been argued that investors might be willing to buy high fee funds with which they have become familiar, possibly through localized marketing efforts. Recent legislative initiatives, like PRIIPs, already aim to address investors' behaviour more broadly by providing simpler and comparable information on investment products, which is expected to significantly improve investors’ decisions. Miscellaneous – Based on the feedback to the consultations with market participants, there are other ancillary factors that may provide certain disincentives to the effective functioning of the ELTIF framework. These include the impact of vertical distribution channels and cultural preferences for domestic products (home and familiarity bias). However, these factors are outside the scope of the ELTIF framework and cannot be addressed through regulatory measures. 2.4.3. Relative Importance of the identified problems Demand-side and supply-side related considerations are closely inter-connected. With fewer investors having access to and investing in ELTIFs, asset managers have no economic incentive to manufacture and market new financial products, and conversely, lack of high-quality retail financial products will reduce the number of investors and the total amount of invested funds. Nevertheless, based on the extensive feedback of market participants, supply-side drivers, i.e. overly restrictive ELTIF fund rules limiting the available investment universe, fund structures and available strategies, were generally perceived as more important and burdensome as demand-side drivers (i.e. ELTIF fund rules imposing unnecessary restrictions making it difficult and less appealing for investors to access ELTIFs). Furthermore, the voluntary nature of the ELTIFs and the availability of other regulatory alternatives for asset managers in choosing the vehicle for structuring an investment fund, such as AIFs under the AIFMD license or existing national fund structures, have amplified the relative importance of supply-side fund rules and related considerations. As an illustration, limited scope of eligible assets (or, a mere uncertainty in the legal definitions) or lack of flexibility on the execution of co-investment strategies which are customarily required by virtue of the standard asset management mandate by leading alternative asset managers, have been referred as frequent reasons that have prevented well-established AIFMs from opting for ELTIFs as a go-to regulatory vehicle for structuring long-term investments. At the same time, the possibility for passporting ELTIFs across the EU has relatively increased the appeal of this legal framework compared to other fund frameworks. 2.5.Consequences 2.5.1. Fewer investors have access to and invest in ELTIFs Greater participation in capital markets and investor appetite for getting exposure to less liquid investments, such as private equity and debt are clear industry trends. The ELTIF framework has the potential to allow retail investors to participate more actively in these sectors of the economy while still ensuring effective levels of protection. ELTIFs are a well-suited and well-regulated investment vehicle for both mass affluent investors and retail investors in Europe to diversify their investment portfolios into less liquid long-term assets. As highlighted in the 2020 CMU Action Plan, investors should be encouraged to supplement public pensions with life-long saving and investment. In some cases, ELTIF could be a vehicle to help ensure pension adequacy while supporting the development of Europe’s economy and the post-Covid19 pandemic recovery. But this opportunity to harness and grow on the back of general market trends is not being realised. An important factor in this sub-scale realisation of ELTIFs’ potential is that fewer investors have access and invest in ELTIFs than would otherwise be possible without supply and demand-side drivers described above (see Section 2.3.).

Given the fact that ELTIFs are essentially closed-end funds where any investment is typically locked-up during the life of the fund, a commitment (the entry ticket size) of EUR 10,000 may limit retail investor’s potential interest in ELTIF structures. That is mainly because a EUR 10,000 may, in many instances, constitute a much larger proportion of investor’s disposable income (and of investor’s investment portfolio). These investors may often prefer to increase their investment positions gradually, without a substantial up-front commitment. In addition, the 10% aggregate threshold would ex ante limit investor’s capacity to obtain exposure to several ELTIFs even when the risk tolerance, financial situation and other personal and financial characteristics of the investor’s portfolio and personal situation would – in the overall portfolio context – make investments in ELTIFs a highly appropriate and suitable investment. Furthermore, these restrictions constitute additional administrative burdens on asset managers and distributors, who have to ensure compliance with these requirements, which may sometimes be difficult to enforce and validate. As a result, retail investors may often decide to forego an investment in ELTIFs altogether, opting instead for other financial products, such as UCITS, national fund structures, AIFs marketed within a Member State, etc. and hence depriving investors from exposure to long-maturity sustainable assets which ELTIFs tend to include in their portfolios. This also undermines one of the fundamental objectives of the original proposal. In this connection, smaller amounts of financing are channelled by ELTIFs by fewer investors and to fewer long-term projects than if ELTIFs were more commonly used as a vehicle of choice for long-term financing of projects in Europe. 2.5.2. European long-term projects are not benefitting from ELTIF financing to the fullest extent possible While still a relatively new framework, it is evident that the ELTIF has failed to achieve mainstream market appeal and realise its full potential to channel capital financing to long-term investments in the EU. It is therefore obvious that small number of authorised ELTIFs is linked to a small number of net assets, which is translated into fewer long-term projects getting financing channelled via ELTIFs. The ELTIF is thereby also not supporting to the extent possible the development of the CMU, the European Green Deal, post-Covid pandemic recovery and other European policy initiatives. The low uptake of ELTIFs, in turn, could have diminished – to a degree which is difficult to precisely quantify – the availability of capital for those long-term projects in need of capital. This, in turn, could have made the financing of such long-term projects via other alternative methods, such as bank financing or bond issuance, more expensive (depending on the cost of capital and financing considerations) and potentially exposing project owners to additional risks (the need of additional pledge or security, financing conditions, etc.). 2.6.Potential problem evolution without EU action: the baseline scenario If no action were taken to reform the ELTIF regulatory regime, the original objectives of the Regulation will remain unfulfilled and the utility and effectiveness of ELTIFs for investment managers and investors would remain limited. That would leave the potential of the ELTIF framework to contribute to the development of the real economy and CMU unrealised.

No EU action in this area would lead to fewer long-term projects being funded by ELTIFs and, in aggregate, smaller amounts of funding being channelled by ELTIFs to long-term projects (see Section 2.5.). Investors would also be unable to access a long-term investment product to help bridge the gap to longer term saving needs. The opportunity costs and potential cost-savings that could have been generated with financing available from a well-developed ELTIF industry could continue making investments in long-term projects more expensive (or otherwise less attractive), when compared to a situation where ELTIFs are turned into a mature, well-functioning investment fund segment. Such cost savings would have been passed on to the project owners, and ultimately the beneficiaries of such long-term projects (citizens, societal benefits, etc.) and sustainable, green and smart European economy at large. Conversely, access to high-quality investment projects by ELTIFs could make it appealing for asset managers to gain exposure to assets and thus offer ELTIF investors attractive long-term risk-adjusted returns. Finally, without further EU action in this area it is highly likely that ELTIFs would remain a sub-scale and under-developed legal framework which could potentially be characterised by few new ELTIFs launched. It is also possible that EU Member States could choose to introduce sector-specific national fund frameworks to finance long term infrastructure projects or to fund their pandemic recovery, which would create an ever diverging range of national fund frameworks and further diminishing the relevance and the market acceptance of the ELTIF legal framework. Against this background, without EU action, ELTIFs would rarely be set up due to the lack of obvious appeal for asset managers in choosing ELTIF vehicle for structuring their investments in long-term projects. 3.EU’s Right to Act and Justification 3.1.Legal basis The Treaty on the Functioning of the European Union (TFEU) confers upon the European institutions the competence to lay down appropriate provisions that have as their object the establishment and functioning of the internal market (Article 114 TFEU). In this connection, it should be noted that the ELTIF Regulation clearly refers to the availability of the legal basis (Article 114 TFEU). The amendment of the ELTIF Regulation would be based on the same legal basis. Notably, the legislative action to be examined would lay down uniform product rules on investment funds that are targeting long term assets. It aims to ensure that such funds are subject to consistent rules across the EU and that they are more easily identified by investors throughout the EU. At the same time it also aims to ensure a level playing field between different long term investment fund managers and establish uniform conditions for the operation of such funds. This proposal harmonises the operating conditions for all relevant players in the investment fund market for the ultimate benefit of investors and the European economy. 3.2.Subsidiarity: Necessity of EU action Depending on the policy option chosen and the specific design of the rules, the appropriate legal base could also be Article 53(1) TFEU on the taking-up and pursuing of activities by self-employed persons, which is used to regulate financial intermediaries, their investment services and activities. Some Member States have put in place (or are considering) bespoke national regimes to regulate long-term investment funds. These national regimes can follow different approaches and create barriers to the cross-border provision of services in relation to long-term investments.

The ELTIF Regulation also explicitly recognises ELTIFs as a conduit for supporting the CMU. EU action in the ELTIF sector, would add value by preventing market fragmentation through national regimes, addressing deficiencies identified in the framework and promoting further market growth and liquidity. 3.3.Subsidiarity: Added value of EU action In accordance with the ELTIF Regulation, ELTIFs are explicitly recognised as a conduit for supporting and completing the CMU by providing a source of long-term funding for the real economy that is accessible to retail investors. The objectives of the ELTIF Regulation, namely to ensure uniform requirements on the investments and operating conditions for ELTIFs throughout the Union, while taking full account of the need to balance the safety and reliability of ELTIFs with the efficient operation of the market for long-term financing and the cost for its various stakeholders, cannot be sufficiently achieved by the Member States alone. Instead, it can due to their scale and effects be better achieved at Union level. The Union has the right to adopt measures in accordance with the principle of subsidiarity. In accordance with the principle of proportionality, as set out in Article 5 of the Treaty on European Union, ELTIF Regulation does not go beyond what is necessary in order to achieve those objectives (i.e. added value under the subsidiarity). 4.Objectives: What is to be achieved? The graph below provides a schematic overview of the objectives purported to be achieved by the review initiative. Such specific and general objectives are analysed in Sections 4.1 and 4.2 below. Graph 2 – General and specific objectives 4.1.General objectives The general objectives of the ELTIF regime are set out in both the recitals and the enacting provisions of the ELTIF Regulation. The objective of the ELTIF framework is to raise and channel capital towards European long-term investments in the real economy, in line with the Union objective of smart, sustainable and inclusive growth (Article 1(2) of the ELTIF Regulation). Furthermore, according to Recital 52 of the ELTIF Regulation, these objectives comprise ensuring uniform requirements on the investments and operating conditions for ELTIFs throughout the Union, and the need to balance safety and reliability of ELTIFs with the efficient operation of the market for long-term financing and the cost for its stakeholders.

The ELTIF review initiative would not change the initial underlying objectives of the ELTIF regime. The focus remains on targeted amendments to the current fund restrictions and improve the attractiveness of ELTIFs for fund managers and investors to realise the full potential of ELTIFs as an effective conduit for channelling capital towards European long-term projects to the benefit of the European economy and complementing the CMU with an emphasis on smart, sustainable and inclusive investments. This initiative is intended to tackle those challenges in meeting the above-mentioned objectives and ensuring that the ELTIF market continues its growth by making the ELTIF regime more attractive and maximise its contribution to the real economy and CMU while meeting investors’ needs. 4.2.Specific objectives Specific objective of this initiative should be analysed through the lens of the effectiveness of the ELTIF framework and the attractiveness of the ELTIF fund rules for both asset managers and investors alike. ·Specific objective 1: Improve the attractiveness of the ELTIF regime for asset managers Technical changes could facilitate the broadening of the scope of eligible assets and investments and removing certain fund rules limitations, which in turn, would help increase the attractiveness of certain investment strategies and their appeal for investors. This, in turn, would make it economically viable and financially profitable for asset managers to launch new ELTIFs. ·Specific objective 2: Facilitate access for retail investors while preserving investor protection Improving the access of retail investors (primarily targeting numerical hurdles for retail investors) to ELTIFs in a manner that would not decrease the investor protection and preserve market integrity. Such investor safeguards (streamlining the suitability test and avoid duplications with MiFID II) should, in combination with other existing investor protection measures, ensure greater number of retail investors investing in ELTIFs and a larger amount of funding channelled to long-term projects sourced from this investor base. Both of the abovementioned objectives would increase investment in long-term assets, sustainable economic growth, job creation and innovation in the EU. Achieving the above-mentioned specific objectives is thereby linked to the general objectives outlined in Section 4.2. below. 5.Available Policy Options and Impact

This section describes and assesses the policy options identified to tackle the ELTIF fund restrictions applying to both retail and professional investors, as well as retail-investor specific requirements and limitations for the access of retail investors to ELTIFs. In each area, options are described, their impact on stakeholders analysed and compared for their effectiveness and efficiency with the 'no action' option in meeting the specific objectives. The coherence with existing measures is analysed, and an explanation on whether the options conforms to the principles of subsidiarity and proportionality is provided. Preferred options are also identified below (see Section 7). Certain technical aspects and more detailed fund rules are reflected in Annex 7 (eligibility of assets and investments, portfolio composition, diversification and concentration limit requirements, redemptions regime, borrowing of cash requirements, etc.). 5.1.Baseline from which options are assessed In terms of market development, the ELTIF segment remains sub-scale, i.e. despite the ELTIF legal framework being in place for more than five years ELTIFs have failed to scale up significantly. Retail-investors specific requirements and limitations In terms of the access of retail investors to ELTIFs, the ELTIF Regulation contains specific requirements to limit the participation of retail investors. The units or shares of an ELTIF may be marketed to retail investors on the condition that retail investors are provided with appropriate investment advice from the manager of the ELTIF or the distributor (Article 30(1) of the ELTIF Regulation). An ELTIF manager can directly offer or place ELTIFs to retail investors only if it is specifically authorised to do so and only after that manager has performed the suitability test set out in the ELTIF Regulation. The manager of the ELTIF can only recommend ELTIFs if it is deemed suitable for that particular retail investor. It should be noted that the suitability test set out in the ELTIF Regulation are an approximation of such requirements set out in the MiFID II framework. Importantly, the ELTIF Regulation contains numeric thresholds that seek to further limit the participation of the retail investors in ELTIFs. Notably, Article 30(3) of the ELTIF Regulation sets out that where the financial instrument portfolio of a potential retail investor does not exceed EUR 500 000, the manager of the ELTIF or any distributor, after having performed the suitability test under the ELTIF Regulation, shall ensure, on the basis of the information submitted by the potential retail investor, that the potential retail investor does not invest an aggregate amount exceeding 10% of that investor's financial instrument portfolio in ELTIFs and that the initial minimum amount invested in one or more ELTIFs is EUR 10,000. Stakeholder feedback indicates that the 10% aggregate test is ineffective in practice as it relies on a voluntary declaration by the investor that the fund manager or the distributor of the product has no practical means to check or verify. These additional requirements (partially overlapping with those set out in MiFID II rules) represent an unnecessary administrative burden and costs for fund managers but do not enhance overall investor protection within the framework in an effective manner. Both the minimum entry ticket of EUR 10,000 and the aggregate maximum amount of 10% of the financial portfolio are cumulative requirements that are imposed in addition to the suitability test of the ELTIF Regulation, and together have a deterrent effect on the ability and the capacity of retail investors to get exposure to ELTIFs.

It is important to note the retail focus of the ELTIF to establish an AIF product suitable for retail investors and designed to help them meet their long-term investment needs with a well-regulated product framework that nevertheless allows them to invest in assets outside of the normal UCITS space. The existing barriers to retail investors are regarded as overly restrictive and ineffective, particularly given the fact that ELTIFs can only be sold subject to appropriate investment advice. However, removing or re-calibrating these elements of the framework may only lead to minor improvements to investor take-up of ELTIFs. The more critical element lies with the availability or supply of ELTIFs in the market. Single rule-book for ELTIFs In terms of the applicability of the ELTIF rules, the ELTIF Regulation does not differentiate among ELTIFs that are marketed to different categories of investors. ELTIF has a single set of fund rules that are equally applicable to ELTIFs that are marketed to either professional or funds with a retail investor base. Notably, the ELTIF fund rules on the eligible assets, diversification and portfolio composition, concentration limits, borrowing of cash, and other requirements remain identical irrespective of the end-investor. It should also be noted that to the extent that ELTIFs are marketed to retail investors, ELTIF managers have to adhere to additional requirements seeking to safeguard the interests of retail investors, such as a requirement to have arrangements for dealing with complaints submitted by retail investors (Article 5(1)(d) of the ELTIF Regulation), a 2-weeks withdrawal period by retail investors, a requirement to produce and make available the key information document (KID) of the ELTIF in the event that it is marketed to retail investors (Article 31(4) of the ELTIF Regulation), the requirement to have a depositary where an ELTIF is marketed to retail investors (Article 29 of the ELTIF Regulation), and other retail investor specific requirements. This is a critical element identified by a range of stakeholders as impairing both the attractiveness and the utility of the ELTIF framework for investors and managers. The introduction of more flexible rules for both retail and professional ELTIFs will be a critical enabler for greater uptake of the regime in Europe. The additional flexibility for professional only funds would allow fund managers to design specific investment strategies and portfolios to meet the needs of their clients while still retaining the overall ELTIF label and its general rules and requirements which are particularly valued by investors. As regards the additional flexibility for professional only ELTIFs, in terms of legal treatment no differentiation would be envisaged between ELTIFs that can be marketed to professional investors only and those ELTIFs that can be marketed to retail investors. All ELTIFs would continue to be subject to the full body of the requirements under the ELTIF regulation. The key differences between the two types would be that those ELTIFs marketed exclusively to institutional investors would be as follows: no requirement to prepare the KID; no requirement for the 2-weeks withdrawal period; no requirement to have facilities and arrangements to deal with complaints with retail investors; more flexibility in terms of borrowing of cash for those ELTIFs that can be marketed solely to professional investors, than those ELTIFs to which retail investors may have access. Furthermore, for those ELTIFs marketed solely to professional investors, it would be appropriate to remove the 10% limitation in terms of exposures to instruments issued by, or loans granted to, any single qualifying portfolio undertaking, single-asset investments and investments in EuSEF, EuVECA or ELTIF portfolio. Maintaining a close alignment between the rules for ELTIF’s marketed only to professional investors and those available to retail would remain key. Given the availability of alternative vehicles for professional investors (e.g. AIF’s), stakeholders have highlighted that the appeal of ELTIF lies within possibility to offer this fund to both categories of investors on a pan-European basis. Whilst some additional protections are necessary for funds being marketed to retail investors, a further, more distinct separation would put at risk the attractiveness of ELTIF for fund managers. Investment alongside institutional capital providers would also allow retail investors to benefit in terms of better fund oversight and possibly better cost-performance. ELTIF redemptions regime

While individual investors may be interested in investing in an ELTIF, the illiquid nature of most investments in long-term projects precludes an ELTIF from offering regular redemptions to its investors. The commitment of the individual investor to an investment in such assets is, by its nature, made to the full term of the investment. ELTIFs was, consequently, been structured in principle so as not to offer regular or periodic redemptions before the end of the life of the ELTIF. To that end, the key standard rule of the ELTIF regime in this area is that investors in an ELTIF would not be able to request the redemption of their units or shares before the end of the life of the ELTIF. Redemptions to investors would, as a rule, solely be possible after the life of the ELTIF (typically the life cycle of an ELTIF is several years). Nevertheless, in order to incentivise investors, in particular retail investors, who might not be willing to lock their capital up for such a long period of time but would otherwise seek to invest in ELTIFs, it would prove appropriate to consider policy merits of allowing ELTIFs to offer in exceptional and clearly pre-defined situations early redemption rights to investors. In this context, Article 18(2) of ELTIF regulation foresees that “By way of derogation from paragraph 1 [no redemption allowed before the end of life of ELTIF], rules or instruments of incorporation of the ELTIF may provide for the possibility of redemptions before the end of the life of the ELTIF” provided that all of the conditions laid down in the ELTIF Regulation are fulfilled. In particular redemptions are possible up to a percentage of the liquid assets invested in the funds. Notably, these liquid assets represent less than 30% of its capital. More flexible redemption options within the framework was requested by some stakeholders and may increase the appeal of ELTIFs to certain managers and investors but to a lesser extent than the differentiated fund rules and retail barriers to entry. Parallel initiatives Changes introduced to the AIFMD may also impact on the functioning of the ELTIF framework. It is important to note that the AIFMD review would contain targeted amendments to the regime as the framework is regarded as functioning effectively. Based on the current proposal, certain measures may lead to increased costs for AIFMs managing ELTIFs, but these would be outweighed by the need to support adequate supervisory oversight of the AIF sector to ensure investor protection and broader financial stability and there are no outright conflicting proposals between the two reviews. Additional information on the proposed amendments under the AIFMD review are set out in Annex 5. 5.2.1. Options assessing the application of the fund rules to all investor categories The following options were considered: Table 2 – Policy options assessing the application of the fund rules to all investor categories Policy options Description 1. No policy action Retaining the one-size-fits-all ELTIF rules 2. More permissive fund rules Allowing a more permissive fund rules regime for all ELTIFs irrespective of end investors 3. Differentiation between ELTIFs marketed to professional and/or retail investors Introducing a clearer separation and more flexibility between fund rules depending on the funds investors (ELTIFs that can be marketed solely to professional investors and ELTIFs that can be marketed to retail investors)

Option 1 – No policy action This Option would maintain the current status quo whereby ELTIFs would continue to be subject to the same fund rules. Option 2 – More permissive fund rules for all ELTIFs Since rules are considered too restrictive based on available evidence, a straight-forward option would be to make ELTIF fund rules more permissive. As rules currently do not distinguish between ELTIFs marketed to retail investors and those available only to professional investors. To meet the needs of ELTIF fund managers, such change would need to be quite sizeable to make funds attractive for professional investors. However, this Option could raise concerns for retail investor protection. ELTIFs are not the same as UCITS and their risk-profile is not necessarily commensurate with a risk-tolerance of every retail investor. More permissive fund rules in such areas as leverage may not be appropriate for all retail investors. At the same time, it could yield substantial benefits for the attractiveness of ELTIFs to professional investors. Option 3 – Clearer separation between fund rules for different classes of investors Under Option 3, the flexibility contemplated in the ELTIF rules should be differentiated for retail and professional investors to allow, for instance, greater leverage for professional investors or more leeway in terms of portfolio composition rules and asset diversification requirements. This option stems from ESMA’s technical advice to the Commission dated 3 February 2021, in which ESMA explicitly recognised the underlying conflict of the ELTIF framework in trying to serve the needs of both professional and retail investors with a single rulebook approach. ESMA went on to recommend a clear separation between those ELTIFs that are marketed to solely professional investors and the rest, i.e. those ELTIFs that can be marketed to retail investors. More specifically, according to ESMA “If it is considered relevant to create a specific type of ELTIFs for professional investors only, these ELTIFs could benefit e.g. from a higher level of leverage and more flexibility in terms of portfolio diversification and composition.” 5.2.2. Options assessing the specific requirements concerning reduction of ELTIF barriers to participation of retail investors The following options were considered:

Table 3 – Policy options assessing the specific requirements concerning reduction of ELTIF barriers to participation of retail investors Policy options Description 1. No policy action Retaining the minimum investment barrier and the 10% limit, and the current ELTIF-specific suitability tests 2. Reducing or eliminating both barriers to entry for retail investors Eliminating both the minimum investment barrier and the 10% minimum investment limit, and removing the ad-hoc suitability tests to align fully with MiFID II Option 1 – No policy action Absence of policy action or retaining the status quo does not seem, ex ante, a viable option, since it would, at the very minimum, fall short of providing any new impetus to the development of the ELTIFs and attracting additional investments from retail investors. Option 1 means that retail investors would continuously to face barriers to investing into ELTIFs due to the significant deterrent effects the ELTIF specific tests have on the investment decisions and investment capacity of retail investors, and that ELTIF would continue failing to channel investment towards long-term projects and the real economy. Option 2 – Reducing or eliminating both barriers for retail investors This option would involve a combination of measures, including substantially reducing or removing the EUR 10,000 minimum initial investment participation (the “entry ticket”) required by the ELTIF Regulation; and the 10% aggregate investment requirement for those retail investors whose financial portfolios are below EUR 500,000. Compared to Option 1, Option 2 would have the advantage of removing burdensome requirements which in themselves have the intention and the effect of dissuading the participation of retail investors. At the same time, Option 2 would fall short of the goal to remove unnecessary and ineffective barriers on the participation of retail investors. Deleting or substantially reducing the EUR 10,000 entry ticket while leaving intact the 10% aggregate investment threshold would ex ante limit the opportunity of retail investors to get exposure to ELTIFs in a manner that could, in aggregate, constitute a legitimate investment strategy that could be both suitable and appropriate for the retail investor. Importantly, the current 10% aggregate exposure limit is solely based on the self-reported information by the retail investors, who can simply misrepresent the size of their financial portfolios and/or their exposures to other ELTIFs. It is both impracticable and administratively costly for the asset managers and/or distributors to verify or enforce the application of such a 10% limit. The aggregate 10% limit on retail investors with portfolios below EUR 500,000 is thereby banning retail investors from getting exposure to a specific ELTIF once a 10% portfolio allocation “quota” has been reached. The elimination or reduction of the EUR 10,000 minimum investment threshold would provide an opportunity to those retail investors willing and able to diversify their portfolios with lower amounts than EUR 10,000. Consideration could also be given to reducing the threshold to a lower amount. This option would increase the potential overall volumes of the funds that could be invested by retail investors into ELTIFs. In addition, the elimination of the 10% aggregate investment threshold would no longer limit the exposure of retail investors whose financial portfolios are below EUR 500,000. However, given the proposal to align with the MiFID II suitability tests, it is questionable what added value this additional ELTIF only restrictions bring in terms of investor protection. In reality, the tests are generally ineffective and force retail investors to hold larger single exposure in ELTIFs instead of allowing them the possibility to invest smaller amounts across more funds. These barriers are not applied to any other fund type and are discriminatory towards retail investors. It is on this basis that the preferred option is to eliminate the additional retail investor restrictions. From the perspective of restrictions to the participation of retail investors, it would also be appropriate to replace the ELTIF suitability test with the MiFID II suitability framework. This would ensure that the full range of investor protection measures in MiFID II would continue to apply, including the suitability assessment which takes into account clients’ experience, wealth, risk profile and investment horizon. It should be noted that this clarification and alignment of the ELTIF suitability test will maintain an adequate level of protection under the ELTIF regime.

Combining the MIFID II requirements with the other proposed changes presents a balanced package of measures that ensures continued investor protection while opening up ELTIFs to a wider range of retail investors, particularly those who may have longer-term investment needs that can be met by ELTIFs but may not want to invest larger amounts up-front. These changes will grant ELTIF managers the discretion to set their own minimum subscription limits which would facilitate the development of more retail accessible funds in response to investor demands. 5.2.3. Options assessing the redemption policy and life-cycle of ELTIFs The following options were considered: Table 4 – Policy options assessing the redemption policy and life-cycle of ELTIFs Policy options Description 1. No policy action No action, i.e. preserving closed-end nature during fund’s life-cycle, subject to exceptional redemptions 2. Introducing regularity (periodicity) into the ELTIF redemptions regime Introducing a possibility for regular (periodic) redemption policy (such as mid-term, annual or quarterly redemptions, or periodic redemptions, or “evergreen” structures) 3. Allowing limited redemptions through optional liquidity windows regime Allowing an optional redemptions “liquidity window”, such as a redemption mechanism matching the subscriptions via a secondary trading mechanism Option 1 – No policy action ELTIFs could generally be characterised as closed-end funds which only allow redemptions at the end of the life of the fund, except in limited circumstances set out by the ELTIF manager in the ELTIF fund documentation in clearly pre-defined exceptional cases. This fundamental rule of the lock-up during the life of a fund has been justified by the illiquid nature of the assets which an ELTIF is invested in, as well as the fact that the valuation of illiquid assets, taking into account the absence of a market able to provide a fair value on a continuous basis, may be assessed only at the time of the disinvestment (at the end of the life-cycle of the fund). Under Option 1, ELTIFs would remain essentially close-ended with very limited (or exceptional) possibilities for redemption set out in the ELTIF Regulation. This would provide stability to the ELTIFs (since redemptions would be very limited) and provide an ELTIF manager an opportunity to safely execute upon the chosen strategy with almost no outflows from the fund. On the other hand, Option 1 would not be an adequate response to the calls from a large number of stakeholders that have advocated for the need for more readily redeemable ELTIF structure that would provide for broader redemptions opportunities. Option 2 – Facilitating a more flexible redemptions regime Option 2 would imply an opportunity (or an entitlement) for investors for more regular or periodic redemptions (on a monthly, or quarterly, or bi-annual basis or even so-called “evergreen” or a readily available redemption structure that would imply that ELTIFs redemption regime could resemble that of an open-ended fund). Option 2 was advocated by market participants seeking for a possibility to exit from the ELTIF before the end of the life of the fund to address the concern of (predominantly retail) investors who may perceive that they would be locked in their investments for an excessively long period of time.

Option 3 – Allowing limited redemptions through optional liquidity windows Under option 3, the ELTIF would remain essentially closed-ended but updated rules would allow additional flexibility for liquidity based on a matching mechanism – voluntary for asset managers – for matching the supply and demand of transfer requests by exiting ELTIF investors and subscription requests by new ELTIF investors. According to this option, the revised ELTIF Regulation would contain a secondary trading liquidity matching mechanism, once the ELTIF has ramped up, for expressing an open interest, with a few weeks or months advance notice, in new subscriptions for the units or shares of an ELTIF. Transfers of shares or units of ELTIFs by exiting investors would only be permitted, at the discretion of the asset manager and solely if the liquidity window mechanism is set out in the fund documentation and the prospectus, to the extent that a corresponding subscription interest was available to match the existing investors’ units or shares in an ELTIF. This liquidity window mechanism could satisfy the demand from distributors who expressed their concern about the ELTIF’s limited redemption options for retail investors. Since ELTIF would remain essentially closed-ended, option 3 would facilitate secondary trading and provide extra liquidity during the life of the ELTIF. It would also ultimately be up to the fund manager to decide if it is appropriate to introduce this mechanism and decide the frequency to be offered to investors. This liquidity window mechanism could be predefined in the fund documents. There are various possibilities to implement option 3. The following description could give broad parameters, whilst the technical implementation could be worked out. In particular, one would foresee a clarification of how the percentage of ELTIF’s liquid assets should be established. Despite the fact that options 2 and 3 may resemble each other, they are fundamentally distinct. The key difference is that under option 3 the investors’ shares or units would not be withdrawn from the capital of the ELTIF but matched with the funds deposited by the subscribing investors who would receive the corresponding amounts of units or shares of ELTIFs. Under option 3, the possibility to exchange units or shares of ELTIFs could be an opportunity when offered by the ELTIF rules and approved by the fund manager, as opposed to option 2 which would rather be a general entitlement of investors to redeem their units or shares. 5.3.Options discarded at an early stage This section s describes which options have been discarded at an early stage and why. Discarded options enjoying significant support among (certain groups of) stakeholders would include – limiting the scope of eligible investors, reducing access to ELTIFs for retail investors and other policy approaches that are ex ante inconsistent with the purpose of the legal framework and the objectives of this initiative and CMU Action Plan to increase retail investor participation. Repeal of the ELTIF Regulation Repealing the ELTIF Regulation was considered but discarded as disproportionate and not supported by relevant stakeholder groups Rather, extensive stakeholder feedback indicates that there is a market demand for ELTIFs but that take-up could be further improved by allowing more flexibility for fund managers to better structure their funds and investment strategies. ELTIFs can play an important role in the market by providing investors with a well-regulated long-term investment product. ELTIF is also an important part of the CMU (as recognised by the HLF in its report) and encouraging greater participation in capital markets and directing investment into long-term real economy projects across Europe. They can be an important source of financing as the European economy moves into the post-pandemic recovery and transitions to the ‘new normal’. Two further options were considered based on stakeholder suggestions, but discarded: Introducing a “third category” of “semi-professional” investors

Some stakeholders have called for potentially introducing a third (intermediary) category of a “semi-professional” investor in the expectation of increased inflows of funds from high-net-worth individuals. Introducing a separate third category of a “semi-professional” investor would require a profound reengineering of the AIFMD and the MiFIDII/MiFIR rules and definitions. This is an impracticable solution falls outside the scope of the current initiative. Providing for carve-outs or facilitating the listing of ELTIFs Some stakeholders have called for the regime allowing an ELTIF of indefinite duration, e.g. if admitted to trading on a regulated market and provided minimum liquidity conditions are met. Such policy proposals would only prove workable in so far as all ELTIFs are traded on a regulated market (currently no shares or units of ELTIFs are being publicly traded). It is also impracticable and legally impossible to provide explicit incentives via the ELTIF Regulation for the public listing of ELTIFs since that would require a potential change in the Prospectus Regulation, the Market Abuse Regulation, Transparency Directive and other EU legal acts. 6.How do the options compare? 6.1.Greater flexibility in the ELTIF regime for professionals-only ELTIFs In its advice to the Commission dated 3 February 2021, ESMA explicitly recognised the underlying conflict of the ELTIF framework, i.e. trying to serve the needs of both professional and retail investors with the blanket one-size-fits-all approach. ESMA recommended a clearer separation between those ELTIFs that are marketed solely to professional investors and those ELTIFs that can be marketed to retail investors. More specifically, according to ESMA “If it is considered relevant to create a specific type of ELTIFs for professional investors only, these ELTIFs could benefit e.g. from a higher level of leverage and more flexibility in terms of portfolio diversification and composition.” ESMA’s advice to create a clearer distinction between these two different types of ELTIFs would allow managers to tailor more appropriate fund rules, on the one hand, for those ELTIFs that can be marketed exclusively to professional investors with less prescriptive fund rules as regards the scope of eligible assets and investments, be far less prescriptive in terms of the diversification, concentration rules, leverage etc. and, on the other hand, those ELTIFs that can be marketed to retail investors. Comparison of options Option 1 (no action) will have no impacts or effects.

Option 2 would have a generally positive effect on the development of a wider range of ELTIFs. At the same time, some funds may not be suitable for retail investors due to the illiquidity and the nature of the underlying assets and investment strategies pursued. This option would also imply that marketing of ELTIFs to retail investors, in the presence of professional investors, would still introduce restrictions and costs related to the marketing of ELTIFs to retail investors (such as the requirement to prepare the KID, the 2-weeks withdrawal period, the requirement to have facilities and arrangements to deal with complaints with retail investors, etc.). Such costs would likely be spread among all investors (including professional investors of ELTIFs) due to the requirement of an equal treatment of investors. It could be argued that easing of the ELTIF fund rules for ELTIFs irrespective of the investor category (investor base) to which ELTIFs are being marketed will undermine the effective protection of investors by triggering mis-selling of financial products, which are not appropriate to retail investors due to their illiquidity and risk-profile. In addition, this might, in turn, create opposition from the NCAs which are responsible for the effective oversight of the market. In this regard, ESMA has emphasised in its advice that these two types of investors (professional and retail) do not have necessarily the same needs. Some NCAs and ESMA, and some market participants have also noted that Article 30(4) of the ELTIF Regulation (equal treatment of all investors), if interpreted strictly, could imply that no specific share classes could be launched within an ELTIF opened to retail investors. In that case, professional investors would be dissuaded to invest in an ELTIF opened to retail investors as they would have to pay the same percentage/amount of fees than retail investors although their subscriptions are generally much higher. To the contrary, Option 3 would have the advantages of Option 2 without suffering from the flaws of Option 2. Notably, Option 3 would promote a more tailored approach whereby ELTIFs marketed solely to professional investors could benefit from additional flexibility, which would facilitate a fund structure and an investment strategy tailored to the needs of their professional clients. Among such differentiated fund rules, where ELTIFs marketed solely to professional investors could have more flexibility (would be diversification and portfolio composition rules, concentration limits, threshold of eligible investments and borrowing of cash provisions. Option 3 has been endorsed by ESMA, which in its technical advice has advocated in favour of creation on a specific type of ELTIFs for professional investors only. In its assessment “these ELTIFs could benefit e.g. from a higher level of leverage and more flexibility in terms of portfolio diversification and composition”. Some market participants have questioned the introduction of the ELTIF for professional investors only citing the existing AIFMD framework and warned against the possibility that the ELTIFs for retail investors could be treated less favourably than the current ELTIF regime (see Annex 2). In addition, some stakeholders have expressed concerns regarding the introduction of professional only funds as they attach particular value to the participation of retail investors in their funds. However, other stakeholders have indicated their support for this additional flexibility to design funds tailored to meet the needs of their professional and high net worth clients. These clients are interested in investing ELTIFs given that they are viewed as a well regulated product that can provide a safer pathway to access riskier investments such as private equity. However, the restrictions in the ELTIF make it difficult to design a fund and investment strategy that meets their exact needs. The proposal will grant managers this additional flexibility and allow ELTIFs to tap into this new source of high net worth investors that have a different risk profile and appetite to the average retail investor. In this light, it has been concluded that Option 3 would grant additional limited flexibility (degree of flexibility of retail rules is discussed below) that would improve retail investor access and product offering suitable for retail investors. Ultimately, Option 3 would enable additional flexibility appropriate to both types of investors and cater for a more tailored value proposition. Comparison of options: Objective More permissive fund rules for all ELTIFs Differentiation between ELTIFs marketed to professional and/or retail investors Improve the attractiveness of the ELTIF regime for asset managers + Fund managers would have a broader investment universe for their ELTIFs allowing them more flexibility when designing investment strategies and respond to investor needs ++ Investment rules would be significantly more flexible for managers targeting professional clients while ELTIFs with retail investors would still be subject to specific fund rules Facilitate access for retail investors while preserving investor protection + More ELTIFs with a broader range of strategies would make it easier for investors to find funds that meet their investment needs + More ELTIFs with a broader range of strategies would make it easier for investors to find funds that meet their investment needs. Increase the size of the ELTIF market and overall funding channelled via ELTIFs + More flexible fund rules could attract more managers to establish ELTIFs ++ More flexible fund rules could attract more managers to establish ELTIFs and allow the development of ELTIFs targeting professional investors with larger investment capacities that demand specific strategies Efficiency (cost-effectiveness) + Managers will be subject to less stringent rules that would improve the efficiency of their portfolio management. There would be no additional compliance costs. + Managers will be subject to less stringent rules that would improve the efficiency of their portfolio management. There would be no additional compliance costs. Impact on SMEs + More investors and funds would lead to more investment in SMEs + More investors and funds would lead to more investment in SMEs Other economic, environmental, social and fundamental rights impacts + More investors and availability of ELTIFs on the market will lead to increased investment in social and environmental projects + More investors and availability of ELTIFs on the market will lead to increased investment in social and environmental projects Coherence with EU policy objectives + Aligned with overall CMU strategy to continue building internal market for financial services and ensure strategic independence of the EU + Aligned with overall CMU strategy Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative

Summary of impacts: Table 5 - Greater flexibility in the ELTIF regime for funds marketed only to professional investors (summary of impacts) Policy option Impact on retail investors Impact on professional investors Effectiveness No action 0 0 0 Option 2 – More permissive fund rules for all ELTIFs +/- Would allow the development of a wider range of ELTIF products but some funds may not be suitable for retail investors + Would allow the development of a wider range of ELTIF products but presence of retail investors would still impose some restrictions + Stakeholder feedback indicates that any additional flexibility would improve the framework Option 3 – Clearer separation between retail and professional investors + Additional limited flexibility would improve retail investor access and product offering suitable for retail investors ++ Fund managers could design fund structures that are tailored to the needs of their professional clients ++ This approach allows additional flexibility appropriate to both types of investor Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative 6.2.Removing the restrictions for the access by retail investors From the initial stakeholders feedback, as well as the history of the negotiations of the current ELTIF Regulation (i.e. the EUR 10,000 entry ticket and the 10% of the financial portfolio threshold were inserted by the Member States), Option 2 may be opposed by some Member States who may consider that these changes could pose an increased risk to retail investors. Some stakeholders could view this option as allowing retail investors to take higher risks in comparison to their financial capacity. However, when taken together, the ELTIF Regulation’s UCITS-inspired diversification requirements set out in Article 13 and those related to retail distribution and target market identification, as well as the requirement to have in place a depositary, the fact that a suitability assessment will be performed when an ELTIF is marketed to retail investor, offer effective investor protection without the need for the additional restrictions. Hence, the full range of investor protection measures in MiFID II would continue to apply, including the suitability assessment which takes into account clients’ experience, wealth, risk profile and investment horizon. Given these existing regulatory requirements, the additional constraints related to minimum investment amounts and thresholds do not add substantively to the protection of retail investors. While at the same time they preclude retail investors for whom an ELTIF investment is suitable and appropriate. Comparison of options Option 1 would offer no difference in terms of the current sub-scale operation of the ELTIF regime.

Option 2 proposes to reduce the barriers to entry for retail investors and offers distinct advantages by facilitating an increased access of retail investors to ELTIFs to benefit the growth of the ELTIF market. At the same time, care would have to be taken in making such changes to ensure that adequate levels of investor protection are maintained and measures taken to prevent the mis-selling of ELTIF products. In general, there has been an overwhelming support by market participants for the deletion of both the EUR 10,000 minimum investment and the 10% aggregate threshold, as well as in favour of the streamlining of the ELTIF’s suitability test (and removing the requirement of the “appropriate investment advice”) with the MiFID II framework in order to avoid duplications. The High-Level Report on the CMU report has explicitly called for an amendment of Articles 27 and 28 of the ELTIF Regulation to reflect such a change. This option was also endorsed by several large asset management industry associations and asset managers which have cited detrimental effects such restrictions have on the participation of retail investors. Despite the fact that ESMA has not recommended explicitly to remove the abovementioned hurdles, a large number of NCAs have shown openness to considering such amendments. Only a very small number of NCAs have cited risks to the protection of retail investors stemming from excessive exposures to ELTIFs. On balance, it is considered that Option 2, to reduce or eliminate the barriers should not detract from the effectiveness of the existing safeguards and the protection measures for retail investors. That is because when taken together, the ELTIF Regulation’s UCITS-inspired diversification requirements set out in Article 13 and those related to retail distribution and target market identification, as well as the requirement to have in place a depositary (i.e. no depositary obligation exists for EuVECAs and EuSEFs), may be deemed to offer effective investor protections. There is also a requirement for a prospectus and a KID for retail investors, as well as the possibility for a 2-weeks withdrawal period, which provide for additional safeguards for retail investors. In summary, the abovementioned options of deleting both the 10% aggregate investment threshold and the EUR 10,000 minimum investment ticket, whilst aligning the suitability assessment requirements with those under MiFID II would not weaken the retail investor protection. On the contrary, they would reduce complexity for retail investors and managers and ensure greater clarity and certainty due to the closer alignment with MiFID II distribution rules. This would also strengthen the visibility and inception of ELTIFs, reduce administrative costs and overall benefit retail investors, who would only access these products after having completed a suitability assessment. Comparison of options: Objective Reducing or eliminating both barriers to entry for retail investors Improve the attractiveness of the ELTIF regime for asset managers + Reduces the administrative burden of carrying out ineffective assessments of retail investors Facilitate access for retail investors while preserving investor protection + Easier for retail investors to invest in ELTIFs Increase the size of the ELTIF market and overall funding channelled via ELTIFs + Greater retail participation will increase size of the market Efficiency (cost-effectiveness) + Reduces the administrative burden of carrying out ineffective assessments of retail investors Impact on SMEs + More investors and funds would lead to more investment in SMEs Other economic, environmental, social and fundamental rights impacts + More investors and availability of ELTIFs on the market will lead to increased investment in social and environmental projects Coherence with EU policy objectives + Aligned with overall CMU strategy to continue building internal market for financial services and ensure strategic independence of the EU Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative Summary of impacts:

Table 6 - Removing the restrictions for the access by retail investors (summary of impacts) Policy option Impact on

retail investors Impacts on project owners/SMEs Impacts on managers Effectiveness No action 0 0 0 0 Option 2 – Reduce each of the barriers to entry ++ Improved access to retail investors with barriers significantly reduced + Improved capital flows from new inward investment/demand for ELTIFs + Improved capital flows from retail investors/ increased demand for ELTIFs and revenues from operating ELTIFs + Adjusting each of the barriers would allow retail investors to more easily access ELTIFs Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative 6.3.Comparison of options on the redemption regime A significant number of investors are advocating in favour of easing the redemptions policy of ELTIFs and introduce an opportunity for regular (periodic) redemptions by ELTIFs. For instance, a High-Level Forum on the CMU report has recommended to amend the rules on redemption policy and life of ELTIFs by adding appropriate flexibility for investors to redeem their investment before the end of the closed-end fund’s lifetime, bearing in mind the liquidity of the underlying investments. As such, the proposal by certain market participants to introduce regular (periodic) redemptions fails to fully take account of the interests of the redeeming and the remaining investors, as well as impacts on the financial stability. Readily available redemptions come, as explained below, at a high cost and often happen to the detriment of exiting investors, asset managers and remaining non-redeeming investors. Furthermore, limitations to redemptions were cited as beneficial by some asset managers due to ELTIFs’ ability to withstand the volatility and market cycles and allow for a sufficient time for the execution of an investment strategy. Stakeholder feedback, and policy work, as well as specific inputs by some national regulators have suggested to explore the development of a secondary market for ELTIFs, which has, in turn, introduced regulatory merits of a “liquidity window” mechanism to allow potential investors to express an open interest that can be submitted after at least one year of the operation of the fund and with a one month advance notice to subscribe for the units of an ELTIF. Such open interest and possible subscription would only be permitted in so far as and to the extent of a matching corresponding interest in redeeming the existing investors’ units in an ELTIF (see Annex 7). The advantage of this approach is that it would allow those investors that wish to exit, albeit with no guarantee of doing so, while protecting the interests of the remaining investors. The optional redemptions window approach could be implemented irrespective of the categories of investors to whom ELTIFs are marketed. Comparison of options: If applied to all ELTIFs regardless of the underlying assets, funds composition and liquidity set up (e.g. existence of liquidity management tools such as gate arrangements) and investor base, Option 2 would fall short on delivering equitable outcomes for both the exiting and remaining investors, as well as the asset managers. Furthermore, the cash and cash-like instruments that remain un-invested in the liquidity pocket due to the need to meet redemption requests would result in a drag on performance, further exacerbating suboptimal outcomes for the asset managers and remaining investors. Option 2 would imply more flexibility in the ELTIF redemptions regime. Notably, this Option would mean that investors could redeem their investments (with substantially fewer conditions than currently allowed by the ELTIF regime).

Option 3, however, will be focused on creating liquidity via an optional liquidity mechanism. Option 3 would pursue a mechanism which would facilitate a netting of redemption/subscription orders which leads to an exchange in the ownership of units or shares in ELTIFs and respective cash-flows, and as a major advantage, does not lead to a reduction of the ELTIF’s capital. In this respect, the High-Level Forum on the CMU, in its report, has advocated in favour of amending the rules on redemption policy and life of ELTIFs (Art. 18 of the ELTIF Regulation) by adding appropriate flexibility for investors to redeem their investment before the end of the closed-end fund’s lifetime. The views of market participants in this area were partially mixed. A large portion of asset managers (predominantly pursuing equity and diversified strategies, as well as strategies pursuing investments in real assets) were in favour of more flexible redemptions regime bearing in mind the liquidity of the underlying investments. On the contrary, representatives of the private equity have consistently cited problems of illiquidity and the difficulties of the valuation. Some of these concerns were also voiced in ESMA’s technical advice. Notably, ESMA has noted that ELTIFs are closed-end funds which, except in very limited circumstances, only allow redemptions at the end of the life of the fund. This fundamental rule is, in ESMA’s view, justified by the illiquid nature of the assets which an ELTIF is invested in. ESMA’s feedback in this area, as per its technical advice, was not conclusive. According to ESMA, “a possible option would be to develop a regime allowing an ELTIF of indefinite duration, e.g. if admitted to trading on a regulated market9 and provided minimum liquidity conditions are met. In case of listed ELTIF, it should be clarified that the disinvestment from the ELTIF would be possible only on the secondary market.” Whilst the main strength of Option 3 is that it avoids the pitfalls of periodic redemptions described under Option 2, Option 3 would not always give a guarantee or assurance that the redemption would be possible. Essentially, Option 3 would facilitate the creation of the secondary market for the trading of units or shares of ELTIFs in a manner that would not undermine the liquidity profile of ELTIFs. Nevertheless, Option 3 would have an advantage for remaining investors and project owners whose interests would not be prejudiced by outflows from ELTIFs that could diminish the capital available to the asset manager for the execution of the ELTIF strategy. The optional liquidity windows mechanism under Option 3 could be applied both by those ELTIFs marketed to exclusively professional investors and those that can be marketed to retail investors. Comparison of options: Objective Introducing regularity (periodicity) into the ELTIF redemptions regime Allowing limited redemptions through optional liquidity windows regime Improve the attractiveness of the ELTIF regime for asset managers - This would increase the administrative costs and burdens for asset managers and