CELEX: 52013PC0462
Language: en
Date: 2013-06-26
Title: Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Long-term Investment Funds

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		52013PC0462
		
			Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Long-term Investment Funds /* COM/2013/0462  final - 2013/0214 (COD) */
			
				
		
		
			
			   	EXPLANATORY MEMORANDUM
1.           CONTEXT OF THE PROPOSAL
Long-term investment is the provision of
long-lived capital in order to finance tangible assets (such as energy,
transport and communication infrastructures, industrial and service facilities,
housing and climate change and eco-innovation technologies) as well as intangible
assets (such as education and research and development) that boost innovation
and competitiveness. Many of these investments have wider public benefits,
since they generate greater returns for society as a whole by supporting
essential services and improving living standards. This proposal intends to
help increase the pool of capital available for long term investment in tomorrow’s
economy of the European Union with a view to finance transition to the smart,
sustainable and inclusive growth. This will be done by creating a new form of
fund vehicle, EU Long Term Investment Funds or ELTIFs. ELTIFs, by virtue of the
asset classes that they are allowed to invest in, are expected to be able to
provide investors with long term, stable returns. Eligible assets would be
qualified as forming part of ‘alternative investments’ – asset classes that
fall outside the traditional definition of listed shares and bonds. While
alternative investments comprise real estate, venture capital, private equity,
hedge funds, non-listed companies, distressed securities and commodities,
ELTIFs would only focus on alternative investments that fall within a defined
category of long-term asset classes whose successful development requires
investors’ long-term commitment. Therefore, real estate, unlisted companies or
infrastructure projects would be eligible while commodities would not be.
There is a clear need therefore to ensure that
barriers to investment with a long term perspective are tackled at the European
Union level. This is particularly the case for assets such as infrastructure
projects that depend on long term commitments. These assets depend, in part, on
what is often called 'patient capital'. This kind of investment may not be able
to be redeemed for a number of years but are invested in such a way as to be
able to provide stable and predictable returns. Infrastructure projects,
investments in human capital, or operating concessions would fit this description.
Capital invested in this long term, 'patient' manner benefits the real economy
by providing predictable and sustained flows of finance to firms and creates
employment.
Investors such as insurance companies and
pension funds with long term liabilities have expressed an appetite for investing
in longer-term investment assets. At the same time they have pointed to the
absence of readily available pooling mechanisms, such as investment funds, to
facilitate access to these types of investments. As a result such investment
opportunities are restricted to a few very large investors, such as large
pension funds or insurance undertakings, able to raise and commit sufficient
capital by virtue of their own resources. This, in turn, acts as a barrier to
smaller investors such as local pension plans, municipalities, the pension
schemes run by the liberal professions or corporate pension plans who might
otherwise benefit from diversifying their investments into such assets. The
absence of these investor groups, in turn, deprives the real economy from
accessing deeper pools of capital-backed financing. Last, but not least, also
individual retail investors faced with a future liability (home purchases,
education or the financing of major renovations) might benefit from the yield
or regular returns offered by long-term investment funds.
The large-scale and long-term capital
commitments required for operating efficient investment pools for long-term
assets have hitherto been hampered by regulatory fragmentation among Member States.
Where funds and incentives do exist on a national level they are not coherent
with comparable initiatives in other Member States. This prevents the scale of
pooling of capital and investment expertise that creates economies of scale for
funds and therefore benefits investors. On the other hand, the majority of
Member States have no fund models or equivalent incentives that address long-term
asset classes. In the absence of a cross-border fund vehicle, investors in
these markets are excluded from investing in long-term asset classes.
The end result is that there is no readily
available mechanism to channel funds that are to be committed for long periods
of time to real economy projects in need of such financing. This acts as a
brake on the development of long term investing. Expertise amongst investment
professionals is not developed because of lack of demand. Economies of scale
that lead to a reduction of the costs of operating a long-term investment fund
fail to materialise.
In addition, large-scale infrastructure or
industrial engineering projects may require having access to capital pools that
are not always available when capital is raised in a single Member State only.
Large-scale projects also may involve businesses based in a number of different
Member States. Any funding mechanism has to deal with this problem of
fragmentation and facilitate investors and projects in a variety of European
Union countries.
There is, therefore, the need to facilitate
a funding vehicle that is designed specifically to address these problems. To
maximise the efficiency of any funding mechanism it needs to be able to have
access to investors across the Union. The importance of tackling these issues
was set out already in the Single Market Act II (SMA II).[1] One of its twelve key
objectives is to boost long-term investment in the real economy. In order to
achieve this goal, the SMA II proposed developing a new set of EU rules facilitating
cross-border capital raising of the capital necessary to operate cost-efficient
investment funds that target long term investments opportunities.
The wider context of this work has been set
out in the European Commission's Green Paper, the Long-Term Financing of the
European Economy,[2]
outlining supply and demand-side issues across all financing structures. The
Green Paper also confirmed the need for measures on investment funds, as
outlined in this proposal, whilst concentrating on the context of the wider
need to revive funding of the real economy by improving the mixture and overall
resilience of different funding sources. In this the new ELTIF can contribute
to increasing non-bank finance available to businesses, to complement access to
bank financing.
Currently, EU investment fund markets are
dominated by funds operating under the UCITS (Undertakings in Collective
Investments in Transferable Securities) Directive, first introduced in 1985.
UCITS assets under management have now reached €6,697 billion.[3] The UCITS Directive contains a
set of product rules which are used by investment funds available to retail
investors, but is focused on transferable securities for the purposes of
ensuring adequate liquidity is available to support redemptions on demand. As a
result, UCITS are not able to contribute to the funding of patient capital
commitments to infrastructure and other projects. While the UCITS initiative
does not necessarily mean the creation of ELTIF will attract similar levels of
investor interest, given the value that highly liquid funds have for many
retail investors, its success show that EU-wide initiatives can have a strong
impact in developing a market and building investor confidence. 
The creation of the European Venture
Capital Funds (EuVECA) and the European Social Entrepreneurship Funds (EuSEF)
will, along the ELTIFs, help to contribute to the financing of the European
economy. But the EuVECA and EuSEF schemes target a very specific niche of the
EU economy: start ups financed by venture capital and businesses specialising
in achieving social impact. 
The proposal on ELTIFs follows a broader
approach than EuVECA and EuSEF. It intends to target a broad range of long-term
asset classes and it intends to create an investment fund that can also be sold
to retail investors. This raises the need for three core features: (1) specific
product rules covering eligible assets and their diversification; (2) a high
degree of competence for those who are allowed to manage and market ELTIFs and (3)
alignment between the ELTIFs investment horizon and the redemption expectations
of its investors.
The need for product rules
The aim is that the new ELTIF framework is
to create a 'second retail passport' that follows the tried-and-tested UCITS
approach on product specifications and risk spreading. There is considerable
investor interest in having an opportunity to invest in long-term asset classes
that either appreciate over their life cycle (small or midsized companies) or
that produce regular income throughout the holding period (infrastructure
assets). Especially pension plans run by municipalities, boroughs, small and
large companies or the liberal professions want such a vehicle. Due to the fact
that such a long-term asset funds do not exist in many Member States, investors
in those States are shut out from this investment opportunity. A cross-border
passport will remedy that situation. 
To accommodate these investor needs, the
ELTIF will be able to invest in all kind of assets that are not traded on
regulated markets. These assets are illiquid and, for that reason alone,
require a fund to make a long term commitment when purchasing them. The same is
true for those who invest in such a fund. Assets that are not traded on a
secondary market and whose owners would require considerable time in finding a
purchaser would comprise the following: (1) Investments in infrastructure
projects, such as in the field of transport, energy or education; (2)
Investments in unlisted companies, in practice mainly SMEs; (3) investments in
real estate assets, such as buildings or direct purchase of an infrastructure
asset 
Therefore, the mere fact that an asset is
not traded on a regulated market will qualify it as a long-term asset. These
assets are illiquid simply on account of the fact that, without a public
trading venue, you will not find readily available buyers for your asset. Also,
these assets are often quite idiosyncratic and will only be attractive for
buyers who can conduct their own due diligence and are specialist in the
relevant field. For example, once an ELTIF invest in a project company, it
anticipates that there will be no immediately identifiable buyer of this stake
for a considerable period of time. 
In light of their intrinsic lack of
liquidity, the ELTIF proposal refrains from prescribing pre-determined holding
periods. In light of the high level of due diligence that an investment in a
long-term asset requires, it does not appear prudent policy to prescribe
minimum holding periods. This is because each investment decision will be
different and the ELTIF managers are best placed to decide how long they want
to remain invested in the asset in order to generate the promised return. This
is a big difference for UCITS managers who follow macroeconomic developments or
the daily fluctuations on a stock exchange. 
It also appears necessary to provide for
managerial flexibility with respect to the precise time frame in which a
portfolio of long-term assets has to be assembled. This is why the proposal
allows for a five year period in which the long-term asset portfolio can be
build up. In addition, the proposal allows the manager to invest up to 30% of
the ELTIF's capital in liquid securities. This liquidity buffer has been
conceived to allow the ELTIF to manage the cash flow that arises while the
long-term portfolio is being constituted. It also allows the manager to place
surplus cash that is achieved 'between investments' – that is when a long-term
asset is sold in order to be replaced by another. 
To create investor trust and legal
certainty, especially but not only for retail investors targeted by ELTIFs, the
proposed scheme requires a set of robust yet flexible product rules. Product
rules represent the most appropriate way of helping to meet the long term
funding needs identified and to provide ELTIFs with a predictable product
profile. Once authorised, ELTIFs will be available to be marketed to professional
as well as retail investors in other Member States.
ELTIF provide opportunities for investors
to diversify their investment portfolios. The assets the proposed ELTIF may
invest in are alternative investments and therefore very different in nature to
the more traditional listed shares and securities held by many investors. While
the strict diversification rules contained in the UCITS framework might make it
costly or even impossible to operate an ELTIF, the latter would still benefit
from a reasonable level of asset diversification.
This diversification benefit applies
equally to retail as well as it does to institutional or 'sophisticated'
investors such as high net worth individuals. The strong product rules proposed
and the investor protection they create are designed to make ELTIF suitable for
retail investors.
The need for a high level of
managerial competence
Due to their lack of liquidity and due to
the fact that participations in long term asset classes targeted by an ELTIF
are not listed on a regulated market, all long-term assets that an ELTIF is
allowed to invest in fall within the category of ‘alternative investments’ (see
the description of alternative investments above). It is therefore necessary that
ELTIFs will be managed by undertakings that are duly authorised under the AIFMD
to manage and market alternative investments. 
Therefore, the proposed ELTIF framework
will build on the managerial authorisation in the AIFM Directive[4], which lays down the general
rules for alternative investment fund managers who manage and market their
funds to professional investors. Specific LTIF product rules will be added so
that ELTIFs can be easily identified by both professional and retail investors
who are interested in the yield and return profiles associated with investments
in long-term assets. 
The proposed ELTIF framework builds on the
cross-border provisions in the AIFMD, adding to the "European"
passport for marketing professional investors a "European" passport
for marketing to retail investors across the EU with regard to ELTIFs. As ELTIFs
can be sold to retail consumers, there is an increased consumer protection
need, for example the stricter ELTIF rules prohibiting investment in assets
that may create a conflict of interest, transparency rules requiring the
publication of a key information document and specific marketing conditions.
In light of the above, for an ELTIF to be
authorised its manager must also be authorised under the AIFMD. The majority of
assets an ELTIF invests in must be by definition be assets that need to be held
for a long duration. Over-concentration in a single asset or undertaking
creates risks for investors that can prove to be very difficult to manage. To
mitigate this risk an ELTIF will have to comply with diversification rules.
Moreover, limits are proposed on the use of derivatives in relation to ELTIF
assets as well as a cap on borrowing.
The need to align investment and
redemption horizons
The assets an ELTIF invests in will by
their very nature be illiquid. That is to say, they will not be available to be
bought and sold very easily. There may be no reliable secondary market for
long-term assets, a fact which could render their valuation and sale more
difficult. The illiquid nature of the assets is not of itself a problem and the
ELTIF proposal is designed to create a funding vehicle suited to this kind of
assets. The requirements of the AIFMD also address these issues, for example,
in relation to valuation and the requirement that managers have appropriate
valuation policies and mechanisms in place.
The illiquid nature of the assets could
make it difficult for funds to meet a redemption requests made by investors
before an asset or project invested in reaches its expected maturity. A need to
maintain liquid assets to meet redemption requests would also divert money away
from the primary purpose of ELTIFs - to invest in long-term assets. Further,
options to redeem early, i.e., before the end of the fund’s investment
lifecycle, would raise the need to dispose of assets to meet early redemption
requests. There is a danger these assets may have to be sold at 'fire sale'
prices well below what the fund manager may believe the asset should be worth
in an un-forced sale. Such a sale could also reduce any income steam being paid
to other investors who remain invested in the ELTIF. ELTIFs will therefore not
offer early redemption to investors. This approach will remove the potential
conflicts of interests between exiting and remaining investors.
The ELTIF combined with the AIFMD will
provide a strong management and product framework designed to give investors
the confidence that their investments are being prudently, competently and
honestly managed. The fact that redemptions will not be allowed during the life
of the investments selected will have to be clearly indicated as to avoid
mis-placed expectations about the liquidity of the fund. Widening ELTIF to
retail investors will also ensure that the widest possible capital pool is made
available.
In addition, the illiquidity premium
associated with an investment in a long-term asset can only be reaped if the
manager of an ELTIF is at liberty to engage in projects for a significant
period of time without facing constant redemption pressure. As pointed out in
the impact assessment, the illiquidity premium inherent in investing in long
term assets requires holding periods of between 10 and 20 years. For example,
the annualised real estate performance of 12.71% beat the S&P 500 (equity
index) at 10.94% and the typical bond index at 7.70% when assessed over a
period of 14 years. Likewise, the favourable performance of venture capital
funds in the US - annualised returns of 16.5% vs. the S&P 500 at 11.2% -
can only be achieved when choosing an investment horizon of 20 years. 
The positive returns of an investment in
long-term assets should also be assessed against the risks that they carry. As
with traditional investments in stocks and bonds, the risk to lose the entire
capital is naturally present. But what distinguishes the long-term assets from
transferable securities dealt with on a regulated market is their illiquidity
risk. Contrary to stocks and bonds which can normally be easily sold on a
regulated market, long-term assets do not benefit from liquid secondary markets
and it often requires months or years to be able to sell such an
asset. This is why the draft proposal requires that the chosen lifecycle
of an ELTIF has to be sufficiently long to accommodate the diligent choice and
long-term engagement with a chosen project, company or real asset.
In these circumstances, the future fund
passport has to be accompanied by a sufficient degree of managerial flexibility
in choosing assets and determining the timeframe in which they are held prior
to divestiture. This explains why the approach in the draft proposal does not
prescribe fixed time periods for holding investment assets or for the duration
of the ELTIF itself. 
The new ELTIF should therefore be flexible
in its investment policies and holding periods. The aim is to attract a
critical mass of managers who will offer the vehicle across borders thus
attracting a critical mass of assets and investors. Therefore, the lifecycle of
the fund should match the particular profile of the assets in which it will
invest. This has implications on the redemption opportunities that such a fund
can realistically offer. Experience with open-ended long-term funds in national
markets shows that a fund cannot offer redemptions while it remains invested in
long-term assets targeted by the proposal. Matching the lifecycle of the fund
with that of its investment assets is the best possible approach to ensure that
the managers have scope to invest in assets that require long-term commitments
and thereby finance the economy. Offering redemption possibilities at an
earlier stage invariably dilutes the long-term outlook of the fund; this would
reduce its attractiveness for most of the pension plan investors who want a
long-term and steady income instead of early redemption facilities.
This does not, however, imply that
investors cannot redeem their investments prior to the end of the ELTIF's
lifecycle. Many of the successful long-term funds that the Commission's impact
assessment found at national level have been structured as listed entities.
That allows investors to trade their shares or units in the fund on a secondary
market. If long-term investing is really supposed to become attractive for
smaller-scale investors or the retail community at large, secondary markets
will be the principal venue in which you can buy into or leave the long term
fund. 
ELTIF will be investment products within
the meaning of the Markets in Financial Instruments Directive (MiFID)[5] and therefore subject to all
the requirements of that directive in relation to marketing, selling and
disclosure.
The proposed new ELTIF will be available
for marketing to investors across the European Union. It is therefore important
that investors have the confidence of knowing that the level of protection they
will receive will be the same regardless of the origin of the fund manager..
For this reason, the legal instrument proposed is a Regulation since this is
the most appropriate way of achieving consistent, clear and directly applicable
rules throughout the Union. 
2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
2.1.        Consultation with
interested parties
Since mid-2012 the European Commission has
engaged in extensive consultations with representatives from a wide range of
organisations. The consultations has taken the form of bilateral and
multilateral meetings, a written public consultation on asset management issues[6] including long term investment
(LTI) and a follow up questionnaire which was circulated among interested
parties. The Commission services received 65 responses relating to the LTI
section. The follow up questionnaire resulted in 50 responses. Further
bilateral discussions were held with fund managers operating in the
infrastructure and long term markets, fund management associations and retail
as well as institutional investor representatives.
2.2.        Impact assessment
In line with its policy on 'better
regulation' the Commission conducted an impact assessment of policy
alternatives. These alternatives contained a wide range of policy options,
ranging from taking no action, integrating long-term asset classes into the
existing UCITS framework, to creating a fund vehicle for professional investors
only, or a fund vehicle open to all investors, with or without redemption
facilities.
All of these options were analysed against
the general principles of increasing the capital flows available to long term
financing for the European real economy and increasing the coherence of the
single market. However, any new funding mechanism also needs to be framed with
in such a way that the objective of creating economies of scale for fund
managers and increase choice does not conflict with the need to inform and
provide appropriate protection for all investor categories. 
The selected option is to create a
long-term investment fund vehicle open to both professional and retail
investors. In line with the illiquid properties of long-term asset classes,
there would be no redemption rights prior to the termination of the fund’s
lifecycle. The characteristics of the proposed ELTIF would be to allow the
widest range of investors to access ELTIFs. In this way, the potential pool of
capital available to make such investments would be maximised. The ELTIFs would
be subject to product rules designed to ensure sufficient diversification,
address potential conflicts of interest, increase transparency as regards costs
and limit the use of derivatives and leverage. These features are in place to
provide investor protection for retail investors. By not providing redemption
rights during the lifespan of the fund, more of its capital can be invested in
assets that are illiquid. This absence of a redemption right also signals
strongly to retail and professional investors the long term nature of the
commitment.
The comments by the Impact Assessment Board
set out in their opinion of 31 May 2013 have been taken into account. The
problem description has been strengthened to give greater clarity on the size
of the problem being addressed as well as the timing of the proposal. The
description of the options has also been improved as has the analysis of the
effectiveness of the preferred option. The Impact Assessment now also clarifies
in greater detail the reasons why the proposal deviates from some of the views
expressed by certain stakeholders during the consultation process. In
particular, the reasoning was strengthened around the choice to exclude
redemption rights, both from the perspective of investor protection, and from
the perspective of the expected take-up of the new option by investors. While
some retail investors may be less likely to invest in a fund without rights of
redemption on demand, the risks attached to offering such rights could
undermine the fund model, while the reduced efficiency of investments to ensure
additional liquidity would reduce the impact of any additional retail demand.
3.           LEGAL ELEMENTS OF THE
PROPOSAL
3.1.        Legal basis and choice of
the legal form
Article 114(1) TFEU serves as the legal
basis for a Regulation creating uniform provisions aimed at the functioning of
the internal market. Prudential product rules establish the limits of the risks
linked to investment funds that are targeting long-term assets. As such, they
do not regulate access to asset management activities but govern the way such activities
are carried out, in order to ensure investor protection and financial
stability. They underpin the correct functioning of the internal market.
In pursuit of the objective of the internal
market integrity the proposed legislative measure will create a regulatory
framework for ELTIFs, with a view to ensure that such funds are subject to
consistent rules across the EU and that they are identifiable as such by
investors throughout the EU. The target of the proposed Regulation is to create
a robust, yet flexible, set of rules that specifically correspond to the
long-term nature of the investments in question. The proposed rules should also
ensure a level playing field between different long term investment fund
managers. This legislative proposal, therefore, harmonises the operating
conditions for all relevant players in the investment fund market, for the
benefit of all investors and for the smooth functioning of the single market in
financial services.
A Regulation is considered to be the most
appropriate legal instrument to introduce uniform requirements that will deal,
amongst others, with the scope of eligible assets, the portfolio composition,
diversification rules, redemption policy, as well as rules regarding the
authorisation of the funds intending to engage in long-term investments. The
objective of these product rules is to ensure the ELTIFs work in a more
efficient way. The taking up of activities as manager of an ELTIF is regulated
by the AIFM Directive. The activities of the managers will continue to be
subject to AIFMD, but the long-term investment products are governed by the
proposed Regulation, in addition to the rules of the AIFM-D.
3.2.        Subsidiarity and
proportionality
National regulatory approaches are
inherently limited to the Member State in question. Regulating the product
profile of an ELTIF only at national level entails the risk of different
investment products all being sold as long-term investment funds with different
characteristics. This would create investor confusion and would impede the
emergence of a Union-wide level playing field for those managers who offer
ELTIFs to professional and/or retail investors. 
As the asset management sector is
essentially cross-border in nature, the current fragmentation of the ELTIF
market has led this sector to operate below the efficient level. The proposed
harmonised and sustainable framework covering ELTIF will act as a source of
long-term financing for the European economy. The new framework will ensure the
financing of various projects and sectors and will provide stable sources of
return for long-term investors. Therefore, a pan-European ELTIF market is
needed and the proposed legislative measure is consistent with the subsidiarity
principle set out in Article 5(3) TEU and the Second Protocol on the
Application of the Principles of Subsidiarity and Proportionality.
As regards proportionality, set out in
Article 5(4) TEU, the Proposal strikes the appropriate balance between the
public interest at stake and the cost-efficiency of the measure. The proposed
rules seek to create a common product label for which there is a strong public
interest and which would lay down a foundation for a common, competitive and
cost-efficient market for ELTIF across the Union. The requirements imposed on
the different parties concerned have been carefully calibrated. Whenever
possible, requirements have been crafted as minimum standards (e.g. issuer
diversification limits,) and regulatory requirements have been tailored so as
not to unnecessarily disrupt existing business models. In particular, the
proposed Regulation has combined parameters suitable for long-term investments
and specific investor groups, by taking into full account the safety and trust
considerations relating to any ELTIFs designation. The Proposal therefore does
not go beyond what is necessary to achieve a common legal framework for ELTIF,
while at the same time it addresses the regulatory issues which would affect
the reliability of the label.
3.3.        Detailed explanations of
the proposal
The proposal for a Regulation on European
Long-Term Investment Funds (ELTIF) is structured in seven chapters. 
3.3.1.     Chapter I –General
provisions (Articles 1-6)
Chapter I contains general rules, such as
the subject matter and scope of the proposed fund framework, definitions, the
procedure for authorisation of ELTIFs (at fund level), and the interplay of the
proposed Regulation with existing rules governing the authorisation of managers
of alternative investment funds, as set out in Directive 2011/61/EU (AIFMD).
Article 1 specifies the subject matter and
delineates the scope of the Regulation. It makes clear that the requirements
contained in the Regulation are exhaustive, thus leaving no scope for
'gold-plating' at national level. Article 2 contains essential definitions
necessary for the uniform application of the proposed Regulation. Article 3
requires EU AIFs to be authorised in accordance with the proposed Regulation in
order to be marketed or managed across the Union as ELTIFs. The designation
'European Long-term Investment Funds' (ELTIFs) shall be reserved to those EU
AIFs that comply with the proposed Regulation. This implies that a manager of
alternative asset classes that wants to manage or market funds focused on
long-term assets without using the proposed designation is not obliged to
comply with the proposed Regulation.
Article 4 provides a harmonised procedure
for the authorisation of ELTIFs whereas article 5 lays down the conditions for
such an authorization. Article 6 describes the interaction between the existing
AIFMD rules and the proposed Regulation, essentially specifying that compliance
with the Regulation shall be ensured by the manager of the ELTIF.
3.3.2.     Chapter II – Obligations
concerning the investment policies of ELTIFs (Articles 7-15)
Chapter II contains the rules on
permissible investment policies to be pursued by an ELTIF, such as rules
relating to eligible investments, portfolio composition and diversification,
conflict of interest, concentration and cash borrowing.
Article 7 provides that, where applicable,
each investment compartment of an ELTIF shall be regarded as a separate ELTIF
for the purposes of Chapter II.
Article 8 describes two categories of
financial assets that an ELTIF can invest in: long-term assets and assets
listed in Article 50(1) of Directive 2009/65/EC (UCITS Directive). However, an
ELTIF shall not engage in short selling of assets, gain exposure to
commodities, enter into securities lending or securities borrowing agreements,
enter into repurchase agreements or use financial derivative instruments unless
these instruments are used for hedging purposes.
Article 9 elaborates on the eligibility
conditions for long-term assets, such as the different categories of
instruments used to gain access to qualified portfolio undertakings, the
investment in units or shares of other ELTIFs and participations in real
assets, such as real estate, ships or aircrafts. Article 10 sets out the
conditions for an undertaking to become a qualified portfolio undertaking. The
qualified portfolio undertaking should be unlisted, domiciled in the EU and
have the purpose of financing infrastructure projects, companies or real
estate, ships and aircrafts. It should not take the form of a collective
investment undertaking,
Article 11 contains a general rule on the
treatment of conflicts of interest by the ELTIF manager. The manager may not
have any personal interest in a long-term asset in which the ELTIF is invested.
Article 12 provides detailed rules on the
portfolio composition characterising an ELTIF. It also covers the
diversification rules that each ELTIF has to respect in the context of eligible
investment assets, such as rules on the maximum risk exposure that an ELTIF can
have vis-à-vis a single counterparty. Article 13 stipulates the maximum limits
that an ELTIF can hold in a single issuer (concentration limits). Article 14
provides for the conditions under which the ELTIF may borrow cash. Article 15
contains provisions on the application of the portfolio composition and the
diversification rules, taking into account the different stages in the ELTIF
fund life.
3.3.3.     Chapter III – Redemption,
trading and issue of ELTIF shares or units and distribution of income (Articles
16-20)
Chapter III deals with the redemption
policy of ELTIFs, the possibility of trading units or shares of ELTIF on a
secondary market, the issuance of new shares or units, the disposal of ELTIF
assets and the distribution of income to the investors of an ELTIF.
Article 16 precludes an ELTIF from offering
a redemption right to its investors before the end of the life-cycle of the
ELTIF. The life-cycle is defined in the ELTIF rules and corresponds to the
life-cycle of the individual assets of the ELTIF and its long-term investment
objectives.
Article 17 provides for the trading of
units or shares of an ELTIF on regulated markets, as well as the free transfer
of units or shares of an ELTIF to third parties. Article 18 contains the
conditions for the issuance of new shares or units by the ELTIF, such as the
prior offering to existing investors when the issuance price is below the NAV
of the ELTIF. Article 19 deals with the procedure that each ELTIF shall adopt
for the disposal of its assets. Article 20 lays down the applicable rules for
the distribution of the income generated by the assets of the ELTIF and
requires an ELTIF to set out its distribution policy in its fund rules.
3.3.4.     Chapter IV – Transparency
requirements (Articles 21-22)
Chapter IV contains transparency rules
where ELTIFs are being advertised to investors.
Article 21 requires the prior publication
of a key information document and a prospectus before the ELTIF is marketed to
retail investors. The prospectus and any other marketing document shall inform
the investors about the special nature of the long-term investment into an
ELTIF. Article 22 requires the ELTIF manager to disclose in a detailed way to
the investors all costs attached to the fund.
3.3.5.     Chapter V – Marketing
(Articles 23-25) 
Chapter V contains the rules applicable to
an EU AIFM for marketing units or shares of an ELTIF to professional and retail
investors.
Article 23 requires managers of ELTIFs to
have facilities in place in each Member State where they intend to market their
ELTIFs. Article 24 provides the additional requirements that managers have to
comply with in order to market to retail investors. Article 25 builds on the
notification procedures contained in the AIFM Directive for authorising the
managers of ELTIFs to market the units or shares of their ELTIFs to investors
both in their home and in potential host Member States.
3.3.6.     Chapter VI – Supervision
(Articles 26-29)
Chapter VI sets out the applicable rules on
supervision of ELTIFs.
Article 26 clarifies the respective roles
of the competent authorities of the ELTIF and of the manager of the ELTIF.
Article 27 states that the powers of the competent authorities under UCITS and
AIFM Directives should be exercised also with respect to the proposed
Regulation. Article 28 refers to the power of ESMA, whereas Article 29 provides
for the cooperation between supervisory authorities.
3.3.7.     Chapter VII – Final
Provisions (Articles 30-31)
Chapter VII contains rules on a review of
the functioning of the envisaged rules to be prepared by the Commission as well
as provisions on the entry into force of the proposed Regulation.
4.           BUDGETARY IMPLICATIONS
The budgetary impact of the ELTIF
regulation is as indicated in the Legislative Financial Statement attached to
the proposal.
2013/0214 (COD)
Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL
on European Long-term Investment Funds
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 114 thereof,
Having regard to the proposal from the
European Commission,
After transmission of the draft legislative
act to the national Parliaments,
Having regard to the opinion of the
European Economic and Social Committee[7],

Acting in accordance with the ordinary
legislative procedure,
Whereas:
(1)              
Long-term finance is a crucial enabling tool for
putting the European economy on a path of sustainable, smart and inclusive
growth and for building tomorrow's economy in a way that is less prone to
systemic risks and is more resilient. European long-term investment funds (ELTIFs)
provide finance to various infrastructure projects or unlisted companies of lasting
duration that issue equity or debt instruments for which there is no readily
identifiable buyer. By providing finance to such projects, ELTIFs contribute to
the financing of the Union economies. 
(2)              
On the demand side, ELTIFs can provide a steady
income stream for pension administrators, insurance companies and other
entities that face regular and recurrent liabilities. While providing less
liquidiy than investments in transferable securities, ELTIFs can provide a
steady income stream for individual investors that rely on the regular cash
flow that an ELTIF can produce. ELTIFs can also offer good opportunities for
capital appreciation over time for those investors not receiving a steady
income stream.
(3)              
Financing for projects, regarding transport
infrastructure, sustainable energy generation or distribution, social
infrastructure (housing or hospitals), roll-out of new technologies and systems
that reduce use of resources and energy or the further growth of SMEs, can be scarce.
As the financial crisis has shown, complementing bank financing with a wider
variety of financing sources that better mobilise capital markets could help
tackle financing gaps. ELTIFs can play a crucial role in this respect. 
(4)              
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 should, consequently, be
structured so as not to offer regular redemptions before the end of life of the
ELTIF. A report, three years after the adoption of this Regulation, shall
investigate whether this rule will have achieved the expected results in terms
of ELTIF distribution or whether the introduction, in a limited number of
cases, of the possibility, for some individual retail investors, to redeem
their units or shares before the end of the ELTIF, may contribute to increase
the distribution of ELTIF among the individual retail investors.
(5)              
Long-term asset classes within the meaning of
this Regulation should comprise non-listed undertakings that issue equity or
debt instruments for which there is no readily identifiable buyer. This
Regulation should also covers real assets that require significant up-front
capital expenditure. 
(6)              
In the absence of a Regulation setting out rules
on ELTIFs, diverging measures might be adopted at national level, which are
likely to cause distortions of competition resulting from differences in
investment protection measures. Diverging requirements on portfolio
composition, diversification and eligible assets, in particular the investment
in commodities, create obstacles to the cross-border marketing of funds that
focus on non-listed undertakings and real assets because investors cannot
easily compare the different investment propositions offered to them. Divergent
national requirements also lead to different levels of investor protection. Furthermore,
different national requirements pertaining to investment techniques, such as
the permitted levels of borrowing, use of derivative financial instruments,
rules applicable to short selling or securities financing transactions lead to
discrepancies in the level of investor protection. In addition, different
requirements on redemption and/or holding periods impede the cross-border
selling of funds investing in non-listed assets. Those divergences can
undermine the confidence of investors when considering investments in such
funds, and reduce the scope for investors to choose effectively between various
long-term investment opportunities. Consequently, the appropriate legal basis for
this Regulation is Article 114 of the Treaty, as interpreted by consistent case
law of the Court of Justice of the European Union. 
(7)              
Uniform rules across the Union are necessary to
ensure that ELTIFs display a coherent product profile across the Union. In
order to ensure the smooth functioning of the internal market and a high level
of investor protection, it is necessary to establish uniform rules regarding
the operation of ELTIFs, in particular on the composition of the portfolio of
ELTIFs and the investment instruments that they are allowed to use in order to
gain exposure to non-listed undertakings and real assets. Uniform rules on the
portfolio of an ELTIF are also required to ensure that ELTIFs that aim to generate
regular income maintain a diversified portfolio of investment assets suitable
to maintain the regular cash flow.
(8)              
It is essential to ensure that the definition of
the operation of ELTIFs, in particular on the composition of the portfolio of
ELTIFs and the investment instruments that they are allowed to use be directly
applicable to the managers of ELTIFs and therefore these new rules need to be
adopted as a Regulation. This also ensures uniform conditions for the use of
the designation ELTIF by preventing diverging national requirements. Managers
of ELTIFs should follow the same rules across the Union, in order to also
enhance the confidence of investors in ELTIFs and ensure sustainable
trustworthiness of the designation. At the same time, by adopting uniform
rules, the complexity of the regulatory requirements applicable to ELTIFs is
reduced. By means of uniform rules, the managers' cost of compliance with
divergent national rules governing funds that invest in non-listed undertakings
and comparable real asset classes is also reduced. This is especially true for
managers that wish to raise capital on a cross-border basis. It also
contributes to eliminate competitive distortions.
(9)              
The new rules on ELTIFs are closely linked to
Directive 2011/61/EU of the European Parliament and of the Council of 8 June
2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC
and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU)
No 1095/2010[8]
since that Directive 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 Directive 2011/61/EU.
(10)          
Whereas Directive 2011/61/EU also foresees a
staged third country regime governing non-EU AIFMs and non-EU AIFs, the new
rules on ELTIFs have a more limited scope emphasising the European dimension of
the new long term investment product. Hence, only an EU AIF as defined in Directive
2011/61/EU is eligible to become an authorised ELTIF and only if it is managed
by an EU AIFM that has been authorised in accordance with Directive 2011/61/EU.

(11)          
The new rules applicable to ELTIFs should build
on the existing regulatory framework established through Directive 2011/61/EU
and the acts adopted for its implementation. Therefore, the product rules
concerning ELTIFs should apply in addition to the rules laid down in the
existing Union legislation. Particularly, the management and marketing rules
laid down in Directive 2011/61/EU should apply to ELTIFs. Equally, the rules on
the cross-border provision of services and freedom of establishment laid down
in Directive 2011/61/EU should apply accordingly to the cross-border activities
of ELTIFs. These should be supplemented by the specific marketing rules
designed for the cross-border marketing of ELTIFs to both retail and
professional investors across the Union.
(12)          
Uniform rules should apply to all those EU AIFs that
wish to market themselves as ELTIFs. EU AIFs that do not wish to market
themselves as ELTIFs should not be bound by these rules, thereby also
consenting not to benefit from the advantages that ensue. On the other hand, Undertakings
for collective investment in transferable securities (UCITS) and non-EU AIFs
would not be eligible for marketing as ELTIFs.
(13)          
In order to ensure the compliance of ELTIFs with
the harmonised rules governing the activity of these funds, it is necessary to
require that competent authorities authorise ELTIFs. The harmonised
authorisation and supervision procedures for AIFMs under Directive 2011/61/EU
should therefore be supplemented with a special authorisation procedure for
ELTIFs. Procedures should be established to ensure that only EU AIFMs
authorised in accordance with Directive 2011/61/EU and capable of managing an ELTIF
may manage ELTIFs. All appropriate steps are taken to ensure that the ELTIF
shall be able to comply with the harmonised rules governing the activity of
these funds.
(14)          
Given that EU AIFs may take different legal
forms that do not necessarily endow them with legal personality, the provisions
requiring ELTIFs to take action should be understood to refer to the manager of
the ELTIF in cases where the ELTIF is constituted as an EU AIF that is not in a
position to act by itself because it has no legal personality of its own.
(15)          
In order to ensure that ELTIFs target long-term investments,
rules on the portfolio of ELTIFs should require a clear identification of the
categories of assets that should be eligible for investment by ELTIFs and of
the conditions under which they should be eligible. An ELTIF should invest at
least 70% of its capital in eligible investment assets. To ensure the integrity
of ELTIFs it is also desirable to prohibit an ELTIF from engaging in certain financial
transactions that might endanger its investment strategy and objectives by
raising additional risks different to those that might be expected for a fund targeting
long-term investments. In order to ensure a clear focus on long term investments,
as may be useful for retail investors unfamiliar with less conventional
investment strategies, an ELTIF should not be allowed to invest in financial
derivative instruments other than for the purpose of hedging the duration and
currency risk of the other assets. Given the liquid nature of commodities and
financial derivative instruments that give an indirect exposure to them, investments
in commodities do not require a long-term investor commitment and therefore should
be excluded. This rationale does not apply to investments in infrastructure or
companies related to commodities or whose performance is linked indirectly to
the performance of commodities, such as farms in the case of agricultural
commodities or power plants in the case of energy commodities.
(16)          
The definition of what constitutes a long-term investment
is broad. Without necessarily requiring long-term holding periods for the ELTIF
manager, eligible investment assets are generally illiquid, require commitments
for a certain period of time, and have an economic profile of a long-term
nature. Eligible investment assets are non-transferable securities and
therefore do not have access to the liquidity of secondary markets. They often
require fixed term commitments which restrict their marketability. The economic
cycle of the investment sought by ELTIFs is essentially of a long-term nature
due to the high capital commitments and the length of time required to produce
returns. As a result such assets do not suit investments with redemption
rights.
(17)          
An ELTIF should be allowed to invest in assets other
than eligible investment assets, as may be necessary to efficiently manage its
cash flow, but only so long as this is consistent with the ELTIF’s long term
investment strategy.
(18)          
Eligible investment assets must be understood to
include participations, such as equity or quasi-equity instruments, debt
instruments in qualifying portfolio undertakings and loans provided to them. They
should also include participation in other funds that are focused on assets
such as investments in non-listed undertakings that issue equity or debt
instruments for which there is not always a readily identifiable buyer. Direct
holdings of real assets, unless they are securitised, should also form a class
of eligible assets.
(19)          
Quasi-equity instruments must be understood to comprise
a type of financing instrument, which is a combination of equity and debt,
where the return on the instrument is linked to the profit or loss of the
qualifying portfolio undertaking, and where the repayment of the instrument in
the event of default is not fully secured. Such instruments include a variety
of financing instruments such as subordinated loans, silent participations,
participating loans, profit participating rights, convertible bonds and bonds
with warrants. 
(20)          
To reflect existing business practices, an ELTIF
should be allowed to buy existing shares of a qualifying portfolio undertaking
from existing shareholders of that undertaking. Also, for the purposes of
ensuring the widest possible opportunities for fundraising, investments into
other ELTIFs should be permitted. To prevent dilution of the investments into
qualifying portfolio undertakings, ELTIFs should only be permitted to invest in
other ELTIFs, provided that those ELTIFs have not themselves invested more than
10 % of their capital in other ELTIFs.
(21)          
The use of financial undertakings can be
necessary in order to pool and organise the contributions of different
investors, including investments of a public nature, into infrastructure
projects. ELTIFs should therefore be permitted to invest in eligible investment
assets by means of financial undertakings, so long as these undertakings are
dedicated to financing long-term projects.
(22)          
In order to provide investors with the assurance
that ELTIFs contribute directly to the development of long-term investments, ELTIFs
should be limited to investments in undertakings that have not been listed.
Therefore qualifying portfolio undertakings should not be listed on regulated
markets. Qualifying portfolio undertakings include infrastructure projects,
investment in unlisted companies seeking growth and investments in real estate
or other real assets that could be suitable for long term investment purposes.
(23)          
Due to the scale of infrastructure projects,
these require large amounts of capital that have to remain invested for long
periods of time. Such infrastructure projects include public building
infrastructure such as schools, hospitals or prisons, social infrastructure
such as social housing, transport infrastructure such as roads, mass transit
systems or airports, energy infrastructure such as energy grids, climate
adaptation and mitigation projects, power plants or pipelines, water management
infrastructure such as water supply systems, sewage or irrigation systems, communication
infrastructure such as networks and waste management infrastructure such as recycling
or collection systems. 
(24)          
Unlisted undertakings can face difficulties
accessing capital markets and financing further growth and expansion. Private
financing through equity stakes or loans are typical ways of raising financing.
Because such instruments are by their nature long-term investments they require
patient capital that ELTIFs can provide.
(25)          
Investments in real assets require patient
capital due to the absence of liquid secondary markets. Investment funds
represent an essential source of financing for assets that require large
capital expenditure. For these assets, capital pooling is often necessary to
achieve the desired level of funding. Such investments require long periods of
time due to the generally long economic cycle attached to these assets. It
generally takes several years to amortize the investment in large real assets.
In order to facilitate the development of such large assets, ELTIFs should be
able to invest directly in real assets with a value of more than €10 million.
In practice this would include assets such as infrastructure, real estate,
ships, aircraft or rolling stock. For these reasons it is necessary to treat
direct holdings in real assets and investments in qualifying portfolio
undertakings in like manner.
(26)          
Where the manager holds a stake in a portfolio
undertaking, there is a risk that the manager puts its interests ahead of the
interests of investors in the fund. To avoid such conflict of interests, the ELTIF
should only invest in assets that are unrelated to the manager.
(27)          
In order to allow managers of ELTIFs a certain
degree of flexibility in the investment of their funds, trading in assets other
than long-term investments should be permitted up to a maximum threshold of 30
% of their capital.
(28)          
In order to limit risk-taking by ELTIFs it is
essential to reduce counterparty risk by subjecting the portfolio of ELTIFs to
clear diversification requirements. All over-the counter (OTC) derivatives
should be subject to Regulation (EU) No 648/2012 of the European Parliament and
of the Council of 4 July 2012 on OTC derivatives, central counterparties and
trade repositories[9].
(29)          
In order to prevent the exercise of significant
influence by an investing ELTIF over the management of another ELTIF or of an
issuing body, it is necessary to avoid excessive concentration by an ELTIF in
the same investment.
(30)          
In order to allow ELTIF managers to raise
further capital during the life of the fund, they should be permitted to borrow
cash amounting to up to 30% of the capital of the fund. This should serve to
provide additional return to the investors. In order to eliminate the risk of
currency mismatches, the ELTIF should only borrow in the currency the manager
expects to acquire the asset in. 
(31)          
Due to the long-term and illiquid nature of the
investments of an ELTIF, the managers should have sufficient time to apply the
investment limits. The time required to implement these limits should take
account of the peculiarities and characteristics of the investments but should
not exceed five years.
(32)          
Notwithstanding the fact that ELTIFs do not
offer redemption rights before the end of life of the ELTIF, nothing should
prevent an ELTIF from seeking admission of these shares or units to a regulated
market as defined in Article 4(14) of Directive 2004/39/EC of the European
Parliament and of the Council of 21 April 2004 on markets in financial
instruments,[10]
to a multilateral trading facility as defined in Article 4(15) of Directive
2004/39/EC, or to an organised trading facility as defined in point (…) of
Regulation (…), thus providing investors with an opportunity to sell their
units or shares before the end of life of the ELTIF. The rules or instruments
of incorporation of an ELTIF should therefore not prevent units or shares from
being admitted to or from being dealt in regulated markets, nor should they
prevent investors from freely transferring their shares or units to third
parties who wish to purchase those shares or units.
(33)          
In order for investors to effectively redeem
their units or shares at the end of the fund's life, the manager should start
to sell the portfolio of assets of the ELTIF in good time to ensure the value
is properly realised. In determining an orderly disinvestment schedule, the ELTIF
manager should take into account the different maturity profiles of the
investments and the length of time necessary to find a buyer for the assets in
which the ELTIF is invested. Due to the impracticality of maintaining the
investment limits during this liquidation period, they should cease to apply
when the liquidation period starts.
(34)          
The assets in which an ELTIF is invested may obtain
a listing on a regulated market during the life of the fund. Where this
happens, the asset would no longer comply with the non-listing requirement of
this Regulation. In order to allow managers to disinvest from such an asset in
an orderly manner, this asset could continue to count towards the 70% limit of
eligible investment assets for up to three years.
(35)          
Given the specific characteristics of ELTIFs, as
well as the targeted retail and professional investors it is important that
solid transparency requirements be put in place that are capable of allowing
prospective investors to make an informed judgement and be fully aware of the
risks implied. In addition to the transparency requirements contained in
Directive 2011/61/EU, ELTIFs should publish a prospectus the content of which
should necessarily include all information required to be disclosed by
collective investment undertakings of the closed-end type in accordance with
Directive 2003/71/EC of the European Parliament and of the Council[11] and Commission Regulation (EC)
No 809/2004.[12]
For the marketing of an ELTIF to retail investors it should be mandatory to
publish a key information document (KID) in accordance with Regulation No […]
of […] of the European Parliament and the Council. Furthermore, any marketing
documents should explicitly draw attention to the risk profile of the ELTIF. 
(36)          
As ELTIFs target both professional and retail
investors across the Union, it is necessary that certain requirements be added
to the marketing requirements laid down in Directive 2011/61/EU in order to
ensure an appropriate degree of investor protection. Thus, facilities should be
made available for making subscriptions, making payments to unit- or
shareholders, repurchasing or redeeming units or shares and making available
the information which the ELTIF and its managers are required to provide.
Moreover, in order to ensure that retail investors are not disadvantaged with
respect to experienced professional investors certain safeguards have to be put
in place when ELTIFs are marketed to retail investors. 
(37)          
The competent authority of the ELTIF should verify
whether an ELTIF is able to comply with this Regulation on an on-going basis.
As the competent authorities are already provided with extensive powers under
Directive 2011/61/EU, it is necessary that such powers be extended in order to
be exercised by reference to the new common rules on ELTIFs. 
(38)          
ESMA should be able to exercise all the powers
conferred under Directive 2011/61/EU with respect to this Regulation.
(39)          
The European Securities and Markets Authority
(ESMA), established by Regulation (EU) No 1095/2010 of the European Parliament
and of the Council of 24 November 2010 establishing a European Supervisory
Authority (ESMA), amending Decision No 716/2009/EC and repealing Commission
Decision 2009/77/EC,[13]
should play a central role in the application of the rules concerning ELTIFs by
ensuring consistent application of Union rules by national competent
authorities. As a body with highly specialised expertise regarding securities
and securities markets, it is efficient and appropriate to entrust ESMA with
the elaboration of draft regulatory technical standards which do not involve
policy choices, for submission to the Commission, in respect of the
circumstances in which the life of an ELTIF will be sufficient in length to
cover the life-cycle of each of the individual assets of the ELTIF, the
features of the schedule for the orderly disposal of ELTIF assets, the
definitions, calculation methodologies and presentation of cost disclosures,
and the characteristics of the facilities to be set up by ELTIFs in each Member
State where they intend to market units or shares.
(40)          
The new uniform rules on ELTIFs should comply
with the provisions of Directive 95/46/EC of the European Parliament and of the
Council of 24 October 1995 on the protection of individuals with regard to the
processing of personal data and on the free movement of such data[14] and with Regulation (EC) No
45/2001 of the European Parliament and of the Council of 18 December 2000 on
the protection of individuals with regard to the processing of personal data by
the Community institutions and bodies and of the free movement of such data[15].
(41)          
Since the objectives of this 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 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 and can therefore, by reason of its
scale and effects, be better achieved at Union level, the Union may adopt
measures in accordance with the principle of subsidiarity as set out in Article
5 of the Treaty on European Union. In accordance with the principle of
proportionality, as set out in that Article, this Regulation does not go beyond
what is necessary in order to achieve those objectives.
(42)          
The new uniform rules on ELTIFs respect the
fundamental rights and observe the principles recognised in particular by the
Charter of Fundamental Rights of the European Union and notably consumer
protection, the freedom to conduct a business, the right to remedy and to a
fair trial, and the protection of personal data. The new uniform rules on ELTIFs
should be applied in accordance with those rights and principles,
HAVE ADOPTED THIS REGULATION:
Chapter I
General provisions
Article 1
Subject matter
1.           This Regulation lays down
uniform rules on the authorisation, investment policies and operating
conditions of EU alternative investment funds (AIFs) that are marketed in the
Union as European long-term investment funds (ELTIFs).
2.           Member States shall not
add any additional requirements in the field covered by this Regulation.
Article 2
Definitions
For the purposes of this Regulation the
following definitions apply:
(1)                   
‘capital’ means aggregate capital contributions
and uncalled committed capital, calculated on the basis of amounts investible
after deduction of all fees, charges and expenses which are directly or
indirectly borne by investors;
(2)                   
'equity' means ownership interest in an
undertaking, represented by the shares or other forms of participation in the
capital of the qualifying portfolio undertaking issued to its investors;
(3)                   
'quasi‑equity' means any type of financing
instrument where the return on the instrument is linked to the profit or loss
of the qualifying portfolio undertaking and where the repayment of the
instrument in the event of default is not fully secured;
(4)                   
‘financial undertaking’ means any of the
following:
(a)         
a credit institution as defined in point (1) of
Article 4 of Directive 2006/48/EC of the European Parliament and of the Council[16];
(b)         
an investment firm as defined in point (1) of
Article 4(1) of Directive 2004/39/EC;
(c)         
an insurance undertaking as defined in point (1)
of Article 13 of Directive 2009/138/EC of the European Parliament and of the
Council[17];
(d)         
a financial holding company as defined in point
(19) of Article 4 of Directive 2006/48/EC;
(e)         
a mixed-activity holding company as defined in
point (20) of Article 4 of Directive 2006/48/EC;
(5)                   
‘competent authority of the ELTIF’ means the
competent authority of the home Member State of the EU AIF as defined in
Article 4(1)(p) of Directive 2011/61/EU;
(6)                   
‘ELTIF home Member State’ means the Member State
where the ELTIF is authorised.
Article 3
Authorisation and use of designation
1.           Only EU AIFs shall be
eligible for authorisation as an ELTIF.
2.           An ELTIF shall only be
marketed in the Union where it has been authorised in accordance with this
Regulation. 
The authorisation as an ELTIF shall be valid
for all Member States.
3.           A collective investment
undertaking shall only use the designation 'ELTIF' or 'long-term investment
fund' in relation to itself or the units or shares it issues where it has been authorised
in accordance with this Regulation.
4.           The competent authorities
of the ELTIF shall, on a quarterly basis, inform ESMA of authorisations granted
or withdrawn pursuant to this Regulation. 
ESMA shall keep a central public register
identifying each ELTIF authorised under this Regulation, its manager and the
competent authority of the ELTIF. The register shall be made available in
electronic format.
Article 4
Application for authorisation as ELTIF 
1.           An ELTIF shall apply for
authorisation to its competent authority.
The application for authorisation as an ELTIF shall
include the following:
(a)         
the fund rules or instruments of incorporation;
(b)         
information on the identity of the manager;
(c)         
information on the identity of the depositary;
(d)         
a description of the information to be made
available to investors;
(e)         
any other information or document requested by
the competent authority of the ELTIF to verify compliance with the requirements
of this Regulation.
2.           An EU alternative
investment fund manager (AIFM) authorised under Directive 2011/61/EU shall
apply to the competent authority of the ELTIF for approval to manage an ELTIF
that has submitted an application for authorisation in accordance with paragraph
1.
The application for managing the ELTIF shall include
the following:
(a)         
the written agreement with the depositary;
(b)         
information on delegation arrangements regarding
portfolio and risk management and administration with regard to the ELTIF;
(c)         
 information about the investment strategies,
the risk profile and other characteristics of AIFs that the AIFM is authorised
to manage.
The competent authority of the ELTIF may ask
the competent authority of the EU AIFM for clarification and information as
regards the documentation referred to in the second subparagraph or an
attestation as to whether ELTIFs fall within the scope of the EU AIFM’s
authorisation to manage AIFs. The competent authority of the EU AIFM shall provide
an answer within 10 working days from the date it received the request submitted
by the competent authority of the ELTIF. 
3.           The ELTIF and the EU AIFM
shall be informed within two months from the date of submission of a complete
application whether authorisation of the ELTIF has been granted. 
4.           Any subsequent
modifications of the documentation referred to in paragraphs 1 and 2 shall be
immediately notified to the competent authority of the ELTIF. 
Article 5
Conditions for granting the authorisation
1.           An applicant ELTIF shall
be authorised only where its competent authority:      
(a)         
is satisfied that the applicant ELTIF is able to
meet all the requirements of this Regulation;
(b)         
has approved the application of an EU AIFM
authorised in accordance with Directive 2011/61/EU to manage the ELTIF, the
fund rules and the choice of the depositary.
2.           The competent authority of
the ELTIF may refuse the application of the EU AIFM to manage the ELTIF only where:
(a)         
the EU AIFM does not comply with this
Regulation;
(b)         
the EU AIFM does not comply with Directive
2011/61/EU;
(c)         
the EU AIFM is not authorised by its competent
authority to manage AIFs that include funds of the type covered in this
Regulation;
(d)         
the EU AIFM has not provided the documentation
referred to in Article 4(2).
Before refusing an application the competent
authority of the ELTIF shall consult the competent authority of the EU AIFM.
3.           The competent authority
shall not grant authorisation as an ELTIF if the applicant ELTIF is legally
prevented from marketing its units or shares in its home Member State.
4.           Authorisation as an ELTIF
shall not be subject to a requirement that the ELTIF be managed by an EU AIFM
authorised in the ELTIF home Member State or that the EU AIFM pursue or
delegate any activities in the ELTIF home Member State
Article 6
Applicable rules and liability
1.           An ELTIF shall comply at
all times with the provisions of this Regulation. 
2.           An ELTIF and its manager
shall comply at all times with the requirements of Directive 2011/61/EU. 
3.           The manager of the ELTIF shall
be responsible for ensuring compliance with this Regulation. The manager shall
be liable for any loss or damage resulting from non-compliance with this
Regulation.
Chapter II
Obligations concerning the investment policies of ELTIFs
Section 1
General rules and eligible assets
Article 7
Investment compartments
Where an ELTIF comprises more than one
investment compartment, each compartment shall be regarded as a separate ELTIF
for the purposes of this Chapter. 
Article 8
Eligible investments
1.           An ELTIF shall only invest
in the following categories of assets and only under the conditions specified
in this Regulation:
(a)         
eligible investment assets;
(b)         
assets referred to in Article 50(1) of Directive
2009/65/EC of the European Parliament and of the Council.[18]
2.           An ELTIF shall not
undertake any of the following activities:
(a)         
short-selling of assets;
(b)         
taking direct or indirect exposure to
commodities, including via derivatives, certificates representing them, indices
based on them or any other means or instrument that would give an exposure to
them;
(c)         
entering into securities lending agreements,
securities borrowing agreements, and repurchase agreements or any other
agreement that would encumber the assets of the ELTIF; 
(d)         
using financial derivative instruments, except
where the underlying instrument consists of interest rates or currencies and it
solely serves the purpose of hedging the duration and exchange risks inherent
to other investments of the ELTIF.
Article 9
Eligible investment assets
An asset referred to in Article 8(1)(a) shall
be eligible for investment by an ELTIF only where it falls into one of the
following categories:
(a)                   
equity or quasi‑equity instruments which have
been:
(i)      issued by a qualifying portfolio
undertaking and acquired directly by the ELTIF from the qualifying portfolio
undertaking;
(ii)      issued by a qualifying portfolio
undertaking in exchange for an equity instrument previously acquired directly
by the ELTIF from the qualifying portfolio undertaking;
(iii)     issued by an undertaking of which
the qualifying portfolio undertaking is a majority‑owned subsidiary, in
exchange for an equity instrument acquired in accordance with points (i) or (ii)
by the ELTIF from the qualifying portfolio undertaking;
(b)                   
debt instruments issued by a qualifying
portfolio undertaking;
(c)                   
loans granted by the ELTIF to a qualifying
portfolio undertaking;
(d)                   
units or shares of one or several other ELTIFs, European
Venture Capital Funds (EuVECAs) and European Social Entrepreneurship Funds (EuSEFs)
provided that those ELTIFs, EuVECAs and EuSEFs have not themselves invested
more than 10% of their capital in ELTIFs;
(e)                   
direct holdings of individual real assets that
require up-front capital expenditure of at least EUR 10 million or its
equivalent in the currency, and at the time, in which the expenditure is
incurred. 
Article 10
Qualifying portfolio undertaking
1.           A qualifying portfolio
undertaking referred to in Article 9(1) shall be a portfolio undertaking other
than a collective investment undertaking, that fulfils all of the following
requirements:
(a)         
it is not a financial undertaking;
(b)         
it is not admitted to trading:
(i)      on a regulated market as defined in
Article 4(14) of Directive 2004/39/EC; 
(ii)      on a multilateral trading facility as
defined in Article 4(15) of Directive 2004/39/EC;
(iii)     on organised trading facilities as
defined in point […] of Regulation […];
(c)         
it shall be established in a Member State, or in
a third country provided that the third country:
(i)      is not a high-risk and
non-cooperative jurisdictions identified by the Financial Action Task Force
(FATF);
(ii)      has signed an agreement with the
home Member State of the manager of the ELTIF and with every other Member State
in which the units or shares of the ELTIF are intended to be marketed to ensure
that the third country fully complies with the standards laid down in Article 26
of the OECD Model Tax Convention on Income and on Capital and ensures an
effective exchange of information in tax matters, including any multilateral
tax agreements.
2.           By way of derogation from paragraph
1(a) of this Article, a qualifying portfolio undertaking may be a financial
undertaking that exclusively finances qualifying portfolio undertakings referred
to in paragraph 1 of this Article or real assets referred to in Article 9. 
Article 11
Conflict of interest
An ELTIF shall not invest in an eligible
investment asset in which the manager has or takes a direct or indirect
interest, other than by holding units or shares of the ELTIF it manages.
Section 2
Provisions on Investment Policies
Article 12
Portfolio composition and diversification
1.           An ELTIF shall invest at
least 70% of its capital in eligible investment assets.
2.           An ELTIF shall invest no
more than:
(a)         
10% of its capital in assets issued by any
single qualifying portfolio undertaking;
(b)         
10% of its capital in an individual real asset;
(c)         
10% of its capital in units or shares of any
single ELTIF, EuVECA or EuSEF; 
(d)         
5% of its capital in assets referred to in
Article 8(1)(b) where those assets have been issued by any single body.
3.           The aggregate value of units
or shares of ELTIFs, EuvECAs and EuSEFs in an ELTIF portfolio shall not exceed 20%
of the value of its capital.
4.           The aggregate risk
exposure to a counterparty of the ELTIF stemming from over the counter (OTC)
derivative transactions or reverse repurchase agreements shall not exceed 5% of
its capital.
5.           By way of derogation from paragraph
2(a) and 2(b), the ELTIF may raise the 10% limit referred to therein to 20%, provided
that the aggregate value of the assets held by the ELTIF in qualifying
portfolio undertakings and in individual real assets in which it invests more
than 10% of its capital does not exceed 40% of the value of its capital.
6.           Companies which are
included in the same group for the purposes of consolidated accounts, as regulated
by Seventh Council Directive 83/349/EEC[19]
or in accordance with recognised international accounting rules, shall be
regarded as a single qualifying portfolio undertaking or a single body for the
purpose of calculating the limits referred to in paragraphs 1 to 5.
Article 13
Concentration
1.           An ELTIF may acquire no
more than 25% of the units or shares of a single ELTIF, EuVECA or EuSEF.
2.           The concentration limits laid
down in Article 56(2) of Directive 2009/65/EC shall apply to investments in the
assets referred to in Article 8(1)(b) of this Regulation.
Article 14
Borrowing of cash
An ELTIF may borrow cash provided that such
borrowing fulfils all of the following conditions:
(a)                   
it represents no more than 30% of the capital of
the ELTIF;
(b)                   
it serves the purpose of acquiring a participation
in eligible investment assets; 
(c)                   
it is contracted in the same currency as the
assets to be acquired with the borrowed cash;
(d)                   
it does not hinder the realisation of any asset
held in the portfolio of the ELTIF; 
(e)                   
it does not encumber the assets held in the
portfolio of the ELTIF.
Article 15
Application of portfolio composition and diversification rules
1.           The investment limits laid
down in Article 12(1) shall:
(a)         
apply by the date specified in the ELTIF rules
or instruments of incorporation, where this date shall take account of the
peculiarities and characteristics of the assets to be invested by the ELTIF and
shall not be later than five years after the authorisation of the ELTIF. In
exceptional circumstances, the competent authority of the ELTIF, upon submission
of a duly justified investment plan, may approve an extension of this time
limit by no more than one additional year;
(b)         
cease to apply once the ELTIF starts to sell assets
in accordance with its redemption policy as set out in Article 16;
(c)         
be temporarily suspended where the ELTIF raises additional
capital, so long as such a suspension lasts no longer than 12 months.
2.           Where a long-term asset in
which the ELTIF has invested is issued by a qualifying portfolio undertaking
that no longer complies with Article 10(1)(b), the long-term asset may continue
to be counted for the purpose of calculating the 70% referred to in Article 12(1)
for a maximum of three years as of the date when the portfolio undertaking no
longer fulfils the requirements in Article 10. 
Chapter III
Redemption, trading and issue of ELTIF shares or units and distributions of
income
Article 16
Redemption policy
1.           Investors shall not be
able to ask for redemption of their units or shares before the end of life of
the ELTIF. Redemption to investors shall be possible as of the day following
the date defining the end of life of the ELTIF. 
The end of life of the ELTIF shall be clearly indicated
as a specific date in the ELTIF rules or instruments of incorporation and
disclosed to investors.
The ELTIF rules or instruments of incorporation
and disclosures to investors shall lay down the procedures for redemption and
disposal of assets and state clearly that redemption to investors shall
commence on the day following the date defining the end of life of the ELTIF.
2.           The life of the ELTIF
shall be sufficient in length to cover the life-cycle of each of the individual
assets of the ELTIF, measured according to the illiquidity profile and economic
life-cycle of the asset, and the stated investment objective of the ELTIF.
3.           Investors may request the winding
down of the ELTIF if their redemption requests have not been satisfied within
one year after the end of life of the ELTIF.
4.           Investors shall always
have the option to be repaid in cash. 
5.           Repayment in kind out of the
ELTIF’s assets shall be possible only where all of the following conditions are
met:
(a)         
the ELTIF rules or instrument of incorporation
foresees this possibility, under the condition that all investors receive fair
treatment;
(b)         
the investor asks in writing to be repaid
through a share of the assets of the fund; 
(c)         
no specific rules restrict the transfer of those
assets.
6.           ESMA shall develop draft regulatory
technical standards specifying the circumstances in which the life of an ELTIF is
sufficient in length to cover the life-cycle of each of the individual assets of
the ELTIF.
ESMA shall submit those draft regulatory
technical standards to the Commission by […].
Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 17
Secondary market
1.           The ELTIF rules or
instrument of incorporation shall not prevent units or shares of an ELTIF from
being admitted to trading on a regulated market as defined in Article 4(14) of
Directive 2004/39/EC or on a multilateral trading facility as defined in
Article 4(15) of Directive 2004/39/EC or on an organised trading facility as
defined in point (…) of Regulation (…).
2.           The ELTIF rules or
instrument of incorporation shall not prevent investors from freely transferring
their shares or units to third parties.
Article 18
Issuance of new shares or units
1.           An ELTIF may offer new
issues of shares or units in accordance with its fund rules or instruments of
incorporation.
2.           An ELTIF shall not issue
new shares or units at a price below its net asset value without a prior offering
of those shares or units at that price to existing investors.
Article 19
Disposal of ELTIF assets
1.           Each ELTIF shall adopt an
itemised schedule for the orderly disposal of its assets in order to redeem
investors after the end of life of the ELTIF. 
2.           The schedule referred to
in paragraph 1 shall include: 
(a)         
an assessment of the market for potential
buyers; 
(b)         
an assessment and comparison of potential sales
prices; 
(c)         
a valuation for the assets to be divested;
(d)         
a precise timeframe for the disposal schedule. 
3.           ESMA shall develop draft
regulatory technical standards specifying the criteria to be used for the assessments
in point (a) and valuation in point (c) of paragraph 2.
ESMA shall submit those draft regulatory
technical standards to the Commission by […].
Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 20
Distribution of income
1.           An ELTIF may regularly
distribute to investors the income generated by the assets contained in the
portfolio. This income shall be composed of:
(a)         
any income that the assets are regularly
producing;
(b)         
the capital appreciation realized after the
disposal of an asset, but excluding the original capital commitments made.
2.           The income shall not be
distributed to the extent that it is required for future commitments of the ELTIF.
3.           The ELTIF shall state in
its fund rules or instruments of incorporation the distribution policy that it
will adopt during the life of the fund. 
Chapter IV
Transparency requirements
Article 21
Transparency
1.           The units or shares of an
authorised ELTIF shall not be marketed in the Union without prior publication
of a prospectus.
The units or shares of an authorised ELTIF
shall not be marketed to retail investors in the Union without prior
publication of a key information document (KID) in accordance with Regulation
No[…] of […] of the European Parliament and the Council.[20]
2.           The prospectus shall
include the information necessary for investors to be able to make an informed
judgement regarding the investment proposed to them, and, in particular, the
risks attached thereto. 
3.           The prospectus shall
contain at least the following:
(a)         
a statement setting out how the ELTIF's
investment objectives and strategy for achieving these objectives qualify the
fund as long term in nature;
(b)         
information to be disclosed by collective
investment undertakings of the closed-end type in accordance with Directive
2003/71/EC of the European Parliament and of the Council[21] and Commission Regulation (EC)
No 809/2004[22];

(c)         
information to be disclosed to investors
pursuant to Article 23 of Directive 2011/61/EU, if it is not already covered
under point(b) of this paragraph;
(d)         
prominent indication of the categories of assets
the ELTIF is authorised to invest in;
(e)         
any other information considered by the
competent authorities to be relevant for the purpose of paragraph 2.
4.           The prospectus, the KID
and any other marketing documents shall prominently notify investors about the illiquid
nature of the fund. 
In particular, the prospectus, the KID, and any
other marketing documents shall clearly:
(a)         
inform investors about the long-term nature of the
ELTIF’s investments;
(b)         
inform investors about the end of life of the
ELTIF; 
(c)         
state whether the ELTIF is intended to be
marketed to retail investors;
(d)         
state that investors shall have no right to
redeem their investment until the end of the life of the ELTIF; 
(e)         
state the frequency and the timing of any income
payments, if any, to the investors during the life of the fund;
(f)           
advise investors that only a small proportion of
their overall investment portfolio should be invested in an ELTIF.
Article 22
Cost disclosure
1.           The prospectus shall
prominently inform investors as to the level of the different costs borne
directly or indirectly by the investor. The different costs shall be grouped
according to the following headings:
(a)         
costs of setting-up the ELTIF;
(b)         
the costs related to the acquisition of assets;
(c)         
management costs;
(d)         
distribution costs;
(e)         
other costs, including administrative, regulatory,
custodial, and audit costs.
2.           The prospectus shall
disclose an overall ratio of the costs to the capital of the ELTIF.
3.           The key information
document shall reflect all of the costs outlined in the prospectus within its
expression of total costs in monetary and percentage terms.
4.           ESMA shall develop draft
regulatory technical standards to specify:
(a)         
the common definitions, calculation
methodologies and presentation formats of the costs referred to in paragraph 1
and the overall ratio referred to in paragraph 2;
(b)         
the common definition, calculation methodology
and presentation format of the expression of total costs in paragraph 3.
When developing
these draft regulatory technical standards, ESMA shall take into account the
draft regulatory standards referred to in point (…) of Regulation (…) [PRIPS].
ESMA shall submit those draft regulatory
technical standards to the Commission by […].
Power is delegated
to the Commission to adopt the regulatory technical standards referred to in
the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU)
No 1095/2010.
Chapter V
Marketing of units or shares of ELTIFs
Article 23
Facilities available to investors
1.           The manager of an ELTIF
shall, in each Member State where it intends to market units or shares of that ELTIF,
put in place facilities available for making subscriptions, making payments to unit-
or shareholders, repurchasing or redeeming units or shares and making available
the information which the ELTIF and its managers are required to provide.
2.           ESMA shall develop draft
regulatory technical standards to specify the types and characteristics of the
facilities, their technical infrastructure and of the content of their tasks in
respect of ELTIF investors referred to in paragraph 1.
ESMA shall submit those draft regulatory
technical standards to the Commission by […].
Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 24
Additional requirements for marketing to retail investors
The manager of an ELTIF shall be able to
market the units or shares of that ELTIF to retail investors provided that all
of the following additional requirements are fulfilled:
(f)                     
the ELTIF's rules or instruments of
incorporation provide that all investors benefit from equal treatment and no
preferential treatment or specific economic benefits are granted to individual
investors or groups of investors;
(g)                   
the ELTIF is not structured as a partnership;
(h)                   
retail investors may, during the subscription
period and at least two weeks after subscription of units or shares of the ELTIF,
cancel their subscription and have the money returned without penalty.
Article 25
Marketing of units or shares of ELTIFs 
1.           The manager of an ELTIF
shall be able to market the units or shares of that authorised ELTIF to
professional and retail investors in its home Member State upon notification in
accordance with Article 31 of Directive 2011/61/EU.
2.           The manager of an ELTIF
shall be able to market the units or shares of that authorised ELTIF to
professional and retail investors in Member States other than in the home
Member State of the ELTIF manager upon notification in accordance with Article
32 of Directive 2011/61/EU.
3.           The manager of the ELTIF
shall in respect of each ELTIF specify to its competent authority whether or
not it intends to market it to retail investors.
4.           In addition to the
documentation and information required pursuant to Articles 31 and 32 of
Directive 2011/61/EU the manager of the ELTIF shall provide to its competent
authority all of the following:
(a)         
the prospectus of the ELTIF;
(b)         
the key information document of the ELTIF in
case of marketing to retail investors;
(c)         
information on the facilities referred to in
Article 22.
5.           The competences and powers
of the the competent authorities pursuant to Articles 31 and 32 of Directive
2011/61/EU shall be understood to also refer to the marketing of ELTIFs to
retail invetsors and to cover the additional requirments laid down in this
Regulation. 
6.           In addition to its powers
in accordance with Article 31(3) first paragraph of Directive 2011/61/EU, the
competent authority of the home Member State of the ELTIF manager shall also
prevent the marketing of an authorised ELTIF if the ELTIF manager does not or
will not comply with this Regulation.
7.           In addition to its powers
in accordance with Article 32(3) first paragraph of Directive 2011/61/EU, the
competent authority of the home Member State of the ELTIF manager shall also
refuse the transmission of a complete notification file to the competent
authorities of the Member State where the ELTIF is intended to be marketed, if
the ELTIF manager does not or will not comply with this Regulation. 
Chapter VI
Supervision
Article 26
Supervision by the competent authorities
1.           The competent authorities
shall supervise compliance with this Regulation on an on-going basis.
2.           The competent authority of
the ELTIF shall be responsible for supervising compliance with the rules laid
down in Chapters II, III and IV.
3.           The competent authority of
the ELTIF shall be responsible for supervising compliance with the obligations
set out in the fund rules or in the instruments of incorporation, and the
obligations set out in the prospectus, which shall be consistent with this
Regulation.
4.           The competent authority of
the manager of the ELTIF shall be responsible for supervising the adequacy of
the arrangements and organisation of the manager so that the manager of the ELTIF
is in a position to comply with the obligations and rules which relate to the
constitution and functioning of all the ELTIFs it manages.
The competent authority of the manager shall be
responsible for supervising compliance of the ELTIFs manager with this
Regulation.
5.           Competent authorities
shall monitor collective investment undertakings established or marketed in
their territories to verify that they do not use the ELTIF designation or
suggest that they are an ELTIF unless they are authorised and comply with this
Regulation.
Article 27
Powers of competent authorities
1.           Competent authorities
shall have all supervisory and investigatory powers that are necessary for the
exercise of their functions pursuant to this Regulation. 
2.           The powers conferred on
competent authorities in accordance with Directive 2011/61/EU shall be
exercised also with respect to this Regulation.
Article 28
Powers and competences of ESMA
1.           ESMA shall have the powers
necessary to carry out the tasks attributed to it by this Regulation.
2.           ESMA’s powers in
accordance with Directive 2011/61/EU shall be exercised also with respect to this
Regulation and in compliance with Regulation (EC) No 45/2001. 
3.           For the purposes of
Regulation (EU) No 1095/2010, this Regulation shall be included under any
further legally binding Union act which confers tasks on the Authority as referred
to in Article 1(2) of Regulation (EU) 1095/2010.
Article 29
Cooperation between authorities
1.           The competent authority of
the ELTIF and the competent authority of the manager, if different, shall
cooperate with each other and exchange information for the purpose of carrying
out their duties under this Regulation.
2.           Competent authorities and
ESMA shall cooperate with each other for the purpose of carrying out their
respective duties under this Regulation in accordance with Regulation (EU) No
1095/2010.
3.           Competent authorities and ESMA shall
exchange all information and documentation
necessary to carry out their respective
duties under this Regulation in accordance with Regulation (EU) No 1095/2010,
in particular to identify and remedy breaches of this Regulation.

Chapter VII
Final provisions
Article 30
Review
No later than three years after the entry
into force of this Regulation, the Commission shall start a review of the
application of this Regulation. The review shall analyse in particular:
(a)         
the impact of the provision in Article 16(1)
that excludes investors from redeeming their units or shares before the end of
life of the ELTIF. The review, taking into account ELTIF’s distribution to
different investor categories, shall also assess whether exempting a limited
number of individual retail investors from such a rule would have the effect of
increasing demand for ELTIF amongst retail investors;
(b)         
the impact on asset diversification of the
application of the minimum threshold of 70% of eligible investment assets laid
down in Article 12(1), in particular to assess whether increased measures on
liquidity would be necessary should a limited number of individual retail
investors be exempted from the prohibition on redeeming their units before the
end of life of the ELTIF;
(c)         
the extent to which ELTIFs are marketed in the
Union, including whether AIFMs falling under Article 3(2) of Directive
2011/61/EU might have an interest in marketing ELTIFs.
The results of this review shall be
communicated to the European Parliament and the Council accompanied, where
necessary, by appropriate proposals for amendments.
Article 31
Entry into force
This Regulation shall enter into force on the
twentieth day following its publication in the Official Journal of the
European Union.
This Regulation shall be binding
in its entirety and directly applicable in all Member States.
Done at Brussels, 
For the European Parliament                       For
the Council
The President                                                 The
President
LEGISLATIVE FINANCIAL STATEMENT
1.           FRAMEWORK OF THE
PROPOSAL/INITIATIVE 
              1.1.    Title of the proposal/initiative 
              1.2.    Policy
area(s) concerned in the ABM/ABB structure
              1.3.    Nature
of the proposal/initiative 
              1.4.    Objective(s)

              1.5.    Grounds
for the proposal/initiative 
              1.6.    Duration
and financial impact 
              1.7.    Management
mode(s) envisaged 
2.           MANAGEMENT MEASURES 
              2.1.    Monitoring
and reporting rules 
              2.2.    Management
and control system 
              2.3.    Measures
to prevent fraud and irregularities 
3.           ESTIMATED FINANCIAL
IMPACT OF THE PROPOSAL/INITIATIVE 
              3.1.    Heading(s)
of the multiannual financial framework and expenditure budget line(s) affected 
              3.2.    Estimated
impact on expenditure 
              3.2.1. Summary of
estimated impact on expenditure 
              3.2.2. Estimated impact
on operational appropriations 
              3.2.3. Estimated impact
on appropriations of an administrative nature
              3.2.4. Compatibility
with the current multiannual financial framework
              3.2.5. Third-party
contributions 
              3.3.    Estimated impact on revenue
LEGISLATIVE FINANCIAL STATEMENT

1.                      
FRAMEWORK OF THE PROPOSAL/INITIATIVE 

1.1.        Title of the
proposal/initiative 
Regulation of the European Parliament and of the Council on
Long-term Investment Funds
1.2.        Policy area(s) concerned
in the ABM/ABB structure[23] 
Internal Market – Financial markets
1.3.        Nature of the
proposal/initiative 
x The proposal/initiative relates to a new action 
¨ The proposal/initiative relates to a new action
following a pilot project/preparatory action[24]

¨ The proposal/initiative relates to the extension of
an existing action 
¨ The proposal/initiative relates to an action
redirected towards a new action 
1.4.        Objective(s)
1.4.1.     The Commission's
multiannual strategic objective(s) targeted by the proposal/initiative 
Increase the safety and the efficiency of the financial markets;
boost the internal market for financial services
1.4.2.     Specific objective(s) and
ABM/ABB activity(ies) concerned 
Act as a source for long-term financing for the European economy;
ensure a level-playing field between long-term investment fund managers;
increase the non-bank finance available to businesses; ensure investor
protection and financial stability
1.4.3.     Expected result(s) and
impact
Specify the effects
which the proposal/initiative should have on the beneficiaries/groups targeted.
The proposal aims at: enhancing the cross-border marketing of
European long-term investment funds (ELTIFS) to both retail and professional
investors across the Union; providing for a harmonised procedure for the
authorisation of long-term investment funds; identifying the permissible
investment policies to be pursued by long-term investment funds; preventing
conflicts of interest; setting solid transparency requirements and specific
marketing conditions
1.4.4.     Indicators of results and
impact 
Specify the
indicators for monitoring implementation of the proposal/initiative.
Reports should be prepared on:
developments on cross-border marketing of ELTIFs; impact of the
proposed Regulation on investor protection; progress made in achieving
undistorted competition; impact of the proposed measures on the pool of capital
available for long-term investments (e.g. investments on infrastructure
projects, real estate and unlisted companies)
1.5.        Grounds for the
proposal/initiative 
1.5.1.     Requirement(s) to be met in
the short or long term 
As a result of the adoption of the proposed Regulation:
•        Increased cross–border marketing of long-term investment
funds is predicted;
•        The authorisation of the long-term investment funds by the
national competent authorities would be harmonised and the coordination between
the national supervisors would be improved;
•        Further development of long-term investing across the
Union: the harmonisation of the operating conditions for all relevant players
in the investment fund market will ensure the efficiency of long-term
investment funds, as well as it will enable the emergency of economies of
scale;
•        Institutional investors, such as insurance companies and
pension funds, as well as individual retail investors will benefit from yield
of regular returns offered by long-term investment funds;
•        Increased investor choice and quality of service received;
•        Improved transparency will boost investor confidence and it
is likely to lead to better competition;
•        The long-term financing of the European economy would be
enhanced, with a special view to infrastructure projects and the financing of
small and medium enterprises (SMEA);
1.5.2.     Added value of EU
involvement Besoin(s) à satisfaire à court ou à long terme 
1) The regulatory fragmentation prevents investors from gaining
exposure to long-term assets and thus it prevents the increase of pooling of
capital and investment expertise that creates economies of scale for long-term
investment funds;
2) A lack of action at EU level would result in investor confusion
and would impede the emergence of a Union-wide level playing field between
long-term investment fund managers;
1.5.3.     Lessons learned from
similar experiences in the past 
The UCITS (Undertakings in Collective Investments for Transferable
Securities) Directive has first introduced a robust set of product rules used
by investment funds available to retail investors. UCITS assets under
management have now reached €6,697 billion . While the UCITS initiative does
not necessarily mean that the creation of ELTIF will attract similar levels of
investor interest, but it does indicate the success such EU-wide initiatives
can have.
1.5.4.     Compatibility and possible
synergy with other appropriate instruments Besoin(s) à satisfaire à court ou à
long terme 
The proposed rules build on the existing regulatory framework
established through Directive 2011/61/EU (Alternative Investment Fund Managers
Directive – AIFMD) and the acts adopted for its implementation. The harmonised
authorisation and supervision procedures for AIFMs under the AIFMD are
supplemented with an authorisation procedure for ELTIFs. Moreover, the product
rules concerning ELTIFs apply in addition to the rules laid down in the
existing Union legislation, unless they are explicitly dis-applied.
Particularly, the management and marketing rules laid down in the existing
framework, as well as the rules on the cross-border provision of services and
the freedom of establishment included in AIFMD will apply accordingly to
ELTIFs.
1.6.        Duration and financial
impact 
¨ Proposal/initiative of limited
duration 
–     
¨  Proposal/initiative in effect from [DD/MM]YYYY to [DD/MM]YYYY 
–     
¨  Financial impact from YYYY to YYYY 
x Proposal/initiative of unlimited
duration
–     
Implementation with a start-up period from 2015
to 2020,
–     
followed by full-scale operation.
1.7.        Management mode(s) planned[25] 
¨ Centralised direct management by the Commission 
¨ Centralised indirect management with the delegation of implementation
tasks to:
–      ¨  executive agencies 
–      x   bodies set up by the Communities[26] 
–      ¨  national public-sector bodies/bodies
with public-service mission 
–      ¨  persons entrusted with the
implementation of specific actions pursuant to Title V of the Treaty on
European Union and identified in the relevant basic act within the meaning of
Article 49 of the Financial Regulation 
¨ Shared management with the Member States 
¨ Decentralised management with third countries 
¨ Joint management with international organisations (to be specified)
–       If more than one
management mode is indicated, please provide details in the
"Comments" section.

2.                      
MANAGEMENT MEASURES 

2.1.        Monitoring and reporting
rules 
Specify frequency and
conditions. Besoin(s) à satisfaire à court ou à long terme 
Article 81 of the Regulation establishing the European Securities
and Markets Pension Authority (ESMA) provides for the evaluation of the
experience acquired at a result of the operation of ESMA within three years
from the effective start of its operation. To this end, the Commission will
publish a general report that will be forwarded to the European Parliament and
to the Council.
2.2.        Management and control
system 
2.2.1.     Risk(s) identified
Besoin(s) à satisfaire à court ou à long terme 
The additional resource to ESMA foreseen as a result of the current
proposal is needed in order to allow ESMA to carry out its competences and
notably its role in:
•        Ensuring harmonisation and coordination of rules of the
ELITF Regulation by drafting regulatory standards;
•        Reinforcing and ensuring consistent application of national
regulatory powers by issuing guidelines and by drafting implementing technical
standards;
•        Collecting and publishing the necessary information
concerning long-term financial market participants;
The lack of this resource could not ensure a timely and efficient
fulfilment of the role of ESMA.
2.2.2.     Information concerning the
internal control system set up Besoin(s) à satisfaire à court ou à long terme 
Management and control systems as provided for in the ESMA
Regulation will apply also with regard to the role of ESMA according to the
present proposal.
2.3.        Measures to prevent fraud
and irregularities 
Specify existing or
envisaged prevention and protection measures.
For the purposes of combating fraud, corruption and any other
illegal activity, the provisions of Regulation (EC) No 1073/1999 of the
European Parliament and of the Council of 25 May 1999 concerning investigations
conducted by the European Anti-Fraud Office (OLAF) shall apply to the ESMA
without any restriction, as stipulated in Article 66(1) of the ESMA Regulation.
ESMA shall accede to the Inter-institutional Agreement of 25 May
1999 between the European Parliament, the Council of the European Union and the
Commission of the European Communities concerning internal investigations by
the European Anti-Fraud Office (OLAF) and shall immediately adopt appropriate
provisions for all ESMA staff, as provided for in Article 66(2) of the ESMA
Regulation.

3.                      
ESTIMATED FINANCIAL IMPACT OF THE
PROPOSAL/INITIATIVE 
3.1.                
Heading(s) of the multiannual financial
framework and expenditure budget line(s) affected 

·      Existing budget lines 
In order of
multiannual financial framework headings and budget lines.
 Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution 
 Number […][Heading………………………………………...……….] || Diff./non-diff. ([27])   || from EFTA countries[28]   || from candidate countries[29]   || from third countries || within the meaning of Article 21(2)(b) of the Financial Regulation 
 1.a || [12.03.04][ESMA]   || Diff. || YES || YES || NO || NO 
·      New budget lines requested 
In order of multiannual financial framework
headings and budget lines.
 Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution 
 Number […][Heading………………………………………...……….] || Diff./non-diff. || from EFTA countries || from candidate countries || from third countries || within the meaning of Article 21(2)(b) of the Financial Regulation 
   ||   ||   ||   ||   ||   ||   

3.2.                
Estimated impact on expenditure 

The only
impact on expenditures relates to the hiring of 2 additional temporary agents
for an unlimited period of time. The new tasks will be carried out with the
human resources available within the annual budgetary allocation procedure, in
the light of budgetary constraints, which are applicable to all EU bodies and
in line with the financial programming for agencies.

3.2.1.          
Summary of estimated impact on expenditure

EUR million (to three decimal places)
 Heading of multiannual financial framework || 1.a || Competitiveness for Growth and jobs 
 DG: MARKT ||   ||   || 2015 || 2016 || 2017 || 2018 || 2019 || 2020 || TOTAL 
  Operational appropriations ||   ||   ||   ||   ||   ||   ||   
 12.03.04 ESMA || Commitments || (1) || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
 Payments || (2) || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
 Number of budget line || Commitments || (1a) ||   ||   ||   ||   ||   ||   ||   
 Payments || (2a) ||   ||   ||   ||   ||   ||   ||   
 Appropriations of an administrative nature financed from the envelope of specific programmes[30] ||   ||   ||   ||   ||   ||   ||   
 Number of budget line ||   || (3) ||   ||   ||   ||   ||   ||   ||   
 TOTAL appropriations for DG MARKT || Commitments || =1+1a +3 || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
 Payments || =2+2a +3 || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
  TOTAL operational appropriations || Commitments || (4) || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
 Payments || (5) || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
  TOTAL appropriations of an administrative nature financed from the envelope for specific programmes || (6) ||   ||   ||   ||   ||   ||   ||   
 TOTAL appropriations for HEADING 1.a of the multiannual financial framework || Commitments || =4+ 6 || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
 Payments || =5+ 6 || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
If more than one heading is affected by the proposal /
initiative:
  TOTAL operational appropriations || Commitments || (4) ||   ||   ||   ||   ||   ||   ||   ||   
 Payments || (5) ||   ||   ||   ||   ||   ||   ||   ||   
  TOTAL appropriations of an administrative nature financed from the envelope for specific programmes || (6) ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL appropriations under HEADINGS 1 to 4 of the multiannual financial framework (Reference amount) || Commitments || =4+ 6 ||   ||   ||   ||   ||   ||   ||   ||   
 Payments || =5+ 6 ||   ||   ||   ||   ||   ||   ||   ||   
Comment:
this takes into account only 40% of the total costs, the other 60% are financed
by Member States
 Heading of multiannual financial framework || 5 || " Administrative expenditure " 
EUR million (to three decimal places)
   ||   ||   || Year N || Year N+1 || Year N+2 || Year N+3 || Enter as many years as necessary to show the duration of the impact (see point 1.6) || TOTAL 
 DG: <…….> || 
  Human resources ||   ||   ||   ||   ||   ||   ||   ||   
  Other administrative expenditure ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL DG <…….> || Appropriations ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL appropriations for HEADING 5 of the multiannual financial framework || (Total commitments = Total payments) ||   ||   ||   ||   ||   ||   ||   ||   
EUR million (to three decimal places)
   ||   ||   || 2015 || 2016 || 2017 || 2018 || 2019 || 2020 || TOTAL 
 TOTAL appropriations under HEADINGS 1 to 5 of the multiannual financial framework || Commitments || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 
 Payments || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.788 

3.2.2.          
Estimated impact on operational appropriations 

–     
¨  The proposal/initiative does not require the use of operational
appropriations 
–     
þ  The proposal/initiative requires the use of operational
appropriations, as explained below:
Comment:
See above.
Commitment appropriations in EUR million (to three
decimal places)
 Indicate objectives and outputs   ò ||   ||   || Year N || Year N+1 || Year N+2 || Year N+3 || Enter as many years as necessary to show the duration of the impact (see point 1.6) || TOTAL 
 OUTPUTS 
 Type[31]   || Average cost || No || Cost || No || Cost || No || Cost || No || Cost || No || Cost || No || Cost || No || Cost || No total || Total cost 
 SPECIFIC OBJECTIVE No 1[32] ...   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 - Output ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 - Output ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 - Output ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 Subtotal for specific objective No 1 ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 SPECIFIC OBJECTIVE NO 2 ... ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 - Output ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 Subtotal for specific objective No 2 ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL COST ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   

3.2.3.          
Estimated impact on appropriations of an
administrative nature
3.2.3.1.    
Summary 

–     
þ  The proposal/initiative does not require the use of appropriations
of an administrative nature 
–     
¨  The proposal/initiative requires the use of appropriations of an
administrative nature, as explained below:
EUR million (to
three decimal places)
   || Year N[33]   || Year N+1 || Year N+2 || Year N+3 || Enter as many years as necessary to show the duration of the impact (see point 1.6) || TOTAL 
 HEADING 5 of the multiannual financial framework ||   ||   ||   ||   ||   ||   ||   ||   
 Human resources ||   ||   ||   ||   ||   ||   ||   ||   
 Other administrative expenditure ||   ||   ||   ||   ||   ||   ||   ||   
 Subtotal HEADING 5 of the multiannual financial framework ||   ||   ||   ||   ||   ||   ||   ||   
 Outside HEADING 5[34] of the multiannual financial framework   ||   ||   ||   ||   ||   ||   ||   ||   
 Human resources ||   ||   ||   ||   ||   ||   ||   ||   
 Other expenditure of an administrative nature ||   ||   ||   ||   ||   ||   ||   ||   
 Subtotal outside HEADING 5 of the multiannual financial framework ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL ||   ||   ||   ||   ||   ||   ||   ||   
The human resources
appropriations required will be met by appropriations from the DG that are
already assigned to management of the action and/or have been redeployed within
the DG, together if necessary with any additional allocation which may be
granted to the managing DG under the annual allocation procedure and in the
light of budgetary constraints.

3.2.3.2.    
 Estimated
requirements of human resources 

–     
þ  The proposal/initiative does not require the use of human
resources. 
–     
¨  The proposal/initiative requires the use of human resources, as
explained below:
Comment:
–     
No additional human and administrative resources
will be needed in DG MARKT as a result of the proposal. 2 additional temporary agents will be hired at ESMA for an unlimited
period.
Estimate to be expressed in full time
equivalent units
 ||   || Year N || Year N+1 || Year N+2 || Year N+3 || Enter as many years as necessary to show the duration of the impact (see point 1.6) 
 ||  Establishment plan posts (officials and temporary staff) ||   ||   
 || XX 01 01 01 (Headquarters and Commission’s Representation Offices) ||   ||   ||   ||   ||   ||   ||   
 || XX 01 01 02 (Delegations) ||   ||   ||   ||   ||   ||   ||   
 || XX 01 05 01 (Indirect research) ||   ||   ||   ||   ||   ||   ||   
 || 10 01 05 01 (Direct research) ||   ||   ||   ||   ||   ||   ||   
  External staff (in Full Time Equivalent unit: FTE)[35]   || 
 || XX 01 02 01 (CA, SNE, INT from the "global envelope") ||   ||   ||   ||   ||   ||   ||   
 || XX 01 02 02 (CA, LA, SNE, INT and JED in the delegations) ||   ||   ||   ||   ||   ||   ||   
 || XX 01 04 yy[36]   || - at Headquarters   ||   ||   ||   ||   ||   ||   ||   
 || - Delegations ||   ||   ||   ||   ||   ||   ||   
 || XX 01 05 02 (CA, SNE, INT - Indirect research) ||   ||   ||   ||   ||   ||   ||   
 || 10 01 05 02 (CA, INT, SNE - Direct research) ||   ||   ||   ||   ||   ||   ||   
 || Other budget lines (specify) ||   ||   ||   ||   ||   ||   ||   
 || TOTAL ||   ||   ||   ||   ||   ||   ||   
XX is the policy
area or budget title concerned.
The human resources
required will be met by staff from the DG who are already assigned to
management of the action and/or have been redeployed within the DG, together if
necessary with any additional allocation which may be granted to the managing
DG under the annual allocation procedure and in the light of budgetary
constraints.
Description of
tasks to be carried out:
 Officials and temporary staff ||   
 External staff ||   

3.2.4.          
Compatibility with the current multiannual
financial framework 

–     
þ  Proposal/initiative is compatible the current multiannual
financial framework.
–     
¨  Proposal/initiative will entail reprogramming of the relevant
heading in the multiannual financial framework.
Explain what reprogramming is required,
specifying the budget lines concerned and the corresponding amounts.
–     
¨  Proposal/initiative requires application of the flexibility
instrument or revision of the multiannual financial framework[37].
Explain what is required, specifying the
headings and budget lines concerned and the corresponding amounts.

3.2.5.          
Third-party contributions 

–     
The proposal/initiative does not provide for
co-financing by third parties. 
–     
þ The
proposal/initiative provides for the co-financing estimated below:
Appropriations in EUR million (to 3 decimal places)
   || 2015 || 2016 || 2017 || 2018 || 2019 || 2020 || TOTAL 
 Member States via EU national supervisors * || 0.210 || 0.194 || 0.194 || 0.194 || 0.194 || 0.194 || 1.181 
 TOTAL appropriations cofinanced || 0.210 || 0.194 || 0.194 || 0.194 || 0.194 || 0.194 || 1.181 
* Estimation based
on current financing mechanism in ESMA regulation (Member States 60%, Community
40%)

3.3.                
Estimated impact on revenue 

–     
þ  Proposal/initiative has no financial impact on revenue.
–     
¨  Proposal/initiative has the following financial impact:
¨         on own resources 
¨         on miscellaneous revenue 
EUR million (to three decimal places)
 Budget revenue line: || Appropriations available for the current financial year || Impact of the proposal/initiative[38]   
 Year N || Year N+1 || Year N+2 || Year N+3 || Enter as many years as necessary to show the duration of the impact (see point 1.6) 
 Article …………. ||   ||   ||   ||   ||   ||   ||   ||   
For miscellaneous
‘assigned’ revenue, specify the budget expenditure line(s) affected.
Specify the method for
calculating the impact on revenue.
Annex to the Legislative Financial
Statement for a proposal for Regulation of the European Parliament and of the
Council on European Long-Term Investment Funds (ELTIF)
This proposal intends to help increase the
pool of capital available for long term investment in the European Union's real
economy. It will do this by creating a new form of fund vehicle, EU Long Term
Investment Funds or ELTIFs. ELTIFs, by virtue of the asset classes that they
are allowed to invest in, are expected to be able to provide investors with
long term, stable returns. Eligible assets would be qualified as forming part
of ‘alternative investments’ – asset classes that fall outside the traditional
definition of listed shares and bonds. While alternative investments comprise
real estate, venture capital, private equity, hedge funds, non-listed
companies, distressed securities and commodities, ELTIFs would only focus on
alternative investments that fall within a defined category of long-term asset
classes whose successful development requires a long-term commitment from
investors. 
There is a clear need to refocus investors'
approach away from only investing with a short-term outlook or in assets
requiring short-term commitments. One way of achieving this is to reduce
barriers to making longer-term commitments to assets such as infrastructure
projects, by providing what is often called 'patient capital'. This kind of
investment may not be able to be redeemed for a number of years but are
invested in such a way as to be able to provide stable and predictable returns.
Infrastructure projects or operating concessions would fit this description.
Capital invested in this long term, 'patient' manner benefits the real economy
by providing predictable and sustained flows of finance to firms and creates
employment.
To ensure the effective removal of barriers
to a pan-European market for ELTIFs and the trust of investors in these funds,
it is necessary to ensure the highest level of supervisory convergence and proportionate
oversight. The role of ESMA therefore will be of great importance, both in
terms of the development of detailed regulatory requirements to achieve
convergence and uniformity in the market, and in supporting ongoing supervisory
oversight.
The costs related to tasks to be carried
out by ESMA have been estimated for staff expenditure (Title 1), in conformity
with the cost classification in the ESMA draft budget. The proposal of the
Commission includes provisions for ESMA to develop 4 regulatory technical
standards. In addition, ESMA will have to keep a central register on all
authorized ELTIFs. ESMA will also have the opportunity to develop guidelines on
the fields covered by this Regulation. ESMA will also have a role in relation
to ensuring smooth cooperation and coordination of supervision of ELTIFs by the
competent authorities of Member States.
It has been assumed that the Regulation
will enter into force in early 2015, and therefore the additional ESMA
resources are required from 2015. Additional staff has been estimated for the
technical standards, advice and register to be produced by ESMA; and for other
permanent tasks that accompany the function of ESMA in enhancing cooperation
with the competent authorities and convergence in supervisory practices. As
regards the nature of positions, the successful and timely delivery of new
technical standards will require, in particular, additional policy, legal and
impact assessment officers.
The following assumptions were applied to
assess the impact on number of FTEs required to develop technical standards,
guidelines and reports:
·       
One policy officer can draft on average 1,5
technical standards a year. All this work requires preparatory work such as:
·       
Bilateral and multilateral meetings with
stakeholders
·       
Analysis and assessment of options and drafting
of consultation documents
·       
Public consultation of stakeholders
·       
Setting up and management of standing expert
groups composed of supervisors from Member States
·       
Setting up and management of ad hoc expert
groups composed of market participants and representatives of investors
·       
Analysis of the responses to consultations
·       
Drafting of cost/benefit analysis
·       
Drafting of the legal text
A central register would need to be
developed (IT project specified, tenders assessed, project managed). This
register would then be subject to ongoing maintenance, in view of ensuring its
accuracy and completeness. 
In addition, other work will be necessary
on an ongoing basis, including coordination of the action of Member State
supervisors, work to identify supervisory practices and drive convergence in
these, dispute resolution and mediation processes, and market monitoring and
assessment work to identify trends in the European market of long-term
investments and clarify any emerging risks for investors or barriers to the
smooth functioning of the single market for such funds.
This means an additional 2 FTEs are needed
from 2015. It was assumed that this increase in FTEs will be maintained in 2016
to 2020 since the standards will most likely be finalised only in 2016-2017 and
implementation will be required till 2020, while ongoing tasks as outlined
above would increase for ESMA following the implementation work.
Other assumptions:
·       
Based on the distribution of FTEs as from 2015,
the additional 2 FTEs are assumed to be comprised of 2 temporary agents 
·       
Average annual salary costs for different
categories of personnel are based on DG BUDG guidance;
·       
Salary weighting coefficient for Paris of 1,16;
·       
Mission costs assumed at €10,000 per year
·       
Recruiting-related costs (travel, hotel, medical
examinations, installation and other allowances, removal costs, etc) estimated
at €12,700, 
·       
The method of calculating the increase in the
required budget for the 6 years is presented in more detail in table below. The
calculation reflects the fact that that the Community budget funds 40% of the
costs.
 Cost types || Calculations || Amount (in thousands) 
 2015 || 2016 || … || 2020 
 Title 1: Staff expenditure: 11 Salaries and allowances - of which temporary agents - of SNEs - of which contract agents 12 Expenditure related to recruitment 13 Mission expenses Total title 1 : Staff expenditure Of which Community contribution (40%) Of which Member State contribution (60%) ||     =2*131*1,16     =2*12.7 =2*10       ||     304     25 20   349 140   210 ||     304       20   324 130   194 ||     304       20   324 130   194 ||     304       20   324 130   194 
The following table presents the proposed
establishment plan for the 2 temporary agent positions:
 Function group and grade || Posts 
 AD16 ||   
 AD15 ||   
 AD14 ||   
 AD13 ||   
 AD12 ||   
 AD11 ||   
 AD10 ||   
 AD9 ||   
 AD8 ||   
 AD7 || 1 
 AD6 || 1 
 AD5 ||   
   ||   
 AD Total || 2 
[1]               See
hhttp://ec.euopea.eu/internal_market/smact/docs/single-market-act2_en.pdf
[2]               See
hhttp://ec.euopea.eu/internal_market/finances/financing-growth/long-term/index_en.htm
[3]               EFAMA Investment Fund
Industry Factsheet, March 2013
[4]               Directive 2011/61/EU
[5]               Directive 2004/39/EC
[6]               See
http://ec.europa.eu/internal_market/consultations/docs/2012/ucits/ucits_consultation_en.pdf
[7]               OJ C , , p. .
[8]               OJ L 174, 1.7.2011, p. 1.
[9]               OJ L 201. 27.7.2012. p.1
[10]             OJ L 145, 30.4.2004, p.1.
[11]             OJ L 345, 31.12.2003, p.64.
[12]             OJ L 149, 30.4.2004, p.1.
[13]             OJ L 331, 15.12.2010, p.84.
[14]             OJ L 281, 23.11.1995, p. 31–50
[15]             OJ L 8, 12.1.2001, p. 1–22
[16]             OJ L 177, 30.6.2006, p.1.
[17]             OJ L 335, 17.12.2009, p.1.
[18]             OJ L 302, 17.11.2009, p. 32.
[19]             OJ L 193, 18.7.1983, p. 1.
[20]             OJ Reference.
[21]             OJ L 345, 31.12.2003, p.64.
[22]             OJ L 149, 30.4.2004, p. 1.
[23]             ABM: activity-based management – ABB: activity-based
budgeting.
[24]             As referred to in Article 54(2)(a) or (b) of the
Financial Regulation.
[25]             Details of management modes and references to the
Financial Regulation may be found on the BudgWeb site: http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html
[26]             As referred to in Article 185 of the Financial
Regulation.
[27]             Diff. = Differentiated appropriations / Non-Diff. =
Non-differentiated appropriations.
[28]             EFTA: European Free Trade Association. 
[29]             Candidate countries and, where applicable, potential
candidate countries from the Western Balkans.
[30]             Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research.
[31]             Outputs are products and services to be supplied (e.g.:
number of student exchanges financed, number of km of roads built, etc.).
[32]             As described in point 1.4.2. ‘Specific objective(s)…’ 
[33]             Year N is the year in which implementation of the
proposal/initiative starts.
[34]             Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research.
[35]             CA= Contract Staff; LA = Local Staff; SNE= Seconded
National Expert; INT = agency staff; JED= Junior Experts in Delegations). 
[36]             Sub-ceiling for external staff covered by operational
appropriations (former "BA" lines).
[37]             See points 19 and 24 of the Interinstitutional
Agreement (for the period 2007-2013).
[38]             As regards traditional own resources (customs duties,
sugar levies), the amounts indicated must be net amounts, i.e. gross amounts
after deduction of 25% for collection costs.