The European Commission today welcomed the European Parliament's support of a new investment framework designed to attract investors who want to put their money towards long-term investments in companies and projects. These private European Long-Term Investment Funds (ELTIFs) aim to boost the finance available to companies in search for long-term capital for projects relating to energy, transport but also social housing, schools and hospitals. They are an important part of the Capital Markets Union (CMU) - a landmark project launched by the Commission to boost jobs and growth in the EU (see IP/15/4433).
"I welcome the agreement reached today by the European Parliament on European Long Term Investment Funds," said Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union. "These will help channel investment in infrastructure and other long-term projects, essential for a sustained recovery."
In June 2013, the European Commission proposed the creation of a new investment fund framework to make long-term investment easier (see IP/13/605).
The new Funds will be available to all types of investors across Europe, subject to certain requirements set out in EU law. These requirements include the types of long-term assets and firms that the ELTIFs are allowed to invest in, for example infrastructure, transport, intellectual property and sustainable energy projects; how they have to spread their money to reduce risks and the information they have to provide to investors. There are additional rules for ELTIFs offered to retail investors. Any ELTIF manager will also have to comply with the stringent requirements of the Alternative Investment Fund Managers Directive to provide adequate protection for its investors.
Under the proposal, ELTIFs would have to meet a set of common rules so that they:
- always have a depositary to keep assets safe;
- comply with rules on spreading assets to prevent too much money going into one asset;
- only use derivatives to manage currency risks in relation to the assets they hold, and not for speculation;
- and obey limits on the amount they can borrow.
ELTIFs would invest in illiquid assets which are difficult to buy and sell. Firms and projects need to be given the assurance that investors will provide the financial support they need for as long as they need it - this cannot really work if investors are allowed to take their money out at any time. Therefore investors will usually only be able to withdraw money at the specified end date of their investment, at least ten years after they make the initial investment. This must be disclosed clearly up front. However, ELTIF managers can offer investors the option of withdrawing their money early provided they comply with certain stringent requirements. In addition, funds that are offered to retail investors, such as pension funds, must provide extra safeguards, which include limiting the amount of the savings they can invest to 10% of their overall portfolio. In exchange for their patience, investors would be rewarded with a regular income stream and appropriate return for committing their money.
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