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European Long-Term Investment Funds (ELTIF)

The ELTIF is a pan-European regime for Alternative Investment Funds (AIFs) allowing investors to put money into companies and projects that need long-term capital, for example infrastructure projects (transport, energy, hospitals, schools, social housing). An ELTIF must be managed by an authorised Alternative Investment Fund Manager (AIFM), which benefits from a passport enabling it to offer its management services and market its AIFs (including its ELTIFs) throughout the EU.

In principle, investors in an ELTIF are not able to request the redemption of their units or shares before the end of the life of the ELTIF (the date must be clearly indicated in the fund rules or instruments of incorporation). However, they can freely transfer their units or shares to third parties other than the manager of the ELTIF and may be able to obtain a compensating “illiquidity” premium.

In order to benefit from the label, ELTIFs are subject to specific requirements regarding their investment policy. Within five years of authorisation at least 70% of the fund’s capital must be invested in certain types of assets, such as equity or debt instruments issued by or loans granted to qualifying (non-financial) portfolio undertakings. A maximum of 30% can consist of UCITS eligible assets. ELTIFs are also subject to specific rules in respect of fund portfolio composition and diversification.

Managers or distributors of ELTIFs that intend to market the fund to retail investors must put facilities in place in each Member State 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 manager are required to provide (including a key information document, a prospectus and an annual report). Apart from a specific internal process for the assessment of the ELTIF itself, the AIFM must also obtain information from the retail investor and recommend the fund only if it is suitable for that particular retail investor.

Contrary to the EuVECA and EuSEF regime, a depositary monitors the cash flows, safekeeps the fund’s assets and performs oversight activities. ELTIFs targeting retail investors must appoint a UCITS depositary.

An ELTIF may regularly distribute to investors the proceeds generated by the assets contained in its portfolio. In view of the end of its life, the ELTIF shall adopt an itemised schedule for the orderly disposal of its assets in order to redeem investors’ units or shares.

European Venture Capital (EuVECA) funds and their managers

The EuVECA Regulation (EU) No. 345/2013 has been applicable since 22 July 2013 and has been revised by Regulation (EU) 2017/1991 of 25 October 2017. It provides a (voluntary) common framework and label for venture capital funds at EU level, referred to as the “EuVECA” label. In order to benefit from the label, EuVECA funds are subject to specific requirements regarding their investment policy. They are only allowed to invest in certain types of assets, such as equity instruments issued by or loans granted to qualifying portfolio undertakings, meaning undertakings that are at the time of the first investment by the fund in that undertaking not admitted to trading on a regulated market or multilateral trading facility, and that employ up to 499 persons, or small and medium-sized enterprises (SMEs) which are listed on SME growth markets. EuVECA funds are also subject to specific rules in respect of fund portfolio composition, investment techniques and own funds. In particular, these funds must intend to invest at least 70% of their aggregate capital contributions and uncalled committed capital in assets that are qualifying investments and, as a consequence, do not use more than 30% for the acquisition of assets other than qualifying investments. One of the defining features of the EuVECA regime is that it does not require the appointment of a depositary.

The EuVECA Regulation applies to EU managers that are subject to registration with the competent authorities of their home Member State in accordance with the AIFM Directive and manage qualifying venture capital funds with total AuM of less than EUR 500 million. Following the aforementioned revision, the use of the EuVECA label is also open to above-threshold Alternative Investment Fund Managers (AIFMs), which continue to be subject to the requirements of the AIFM Directive while complying with certain provisions of the EuVECA Regulation (those on eligible investments, targeted investors and information requirements).

EuVECA managers can also manage and market Alternative Investment Funds which are not EuVECA funds. However, the EuVECA passport does not apply to these funds.

European Social Entrepreneurship Funds (EuSEF) and their managers

The EuSEF Regulation (EU) No. 346/2013 has been applicable since 22 July 2013 and has been revised by Regulation (EU) 2017/1991 of 25 October 2017. It provides a (voluntary) common framework and label for social entrepreneurship funds at EU level, referred to as the “EuSEF” label. In order to benefit from the label, EuSEF funds are subject to specific requirements regarding their investment policy. They are only allowed to invest in certain types of assets, such as equity or debt instruments issued by or loans granted to qualifying portfolio undertakings, meaning undertakings that that are at the time of an investment by the fund in that undertaking not admitted to trading on a regulated market or multilateral trading facility, that have the achievement of measurable, positive social impacts as their primary objective and that use their profits primarily to reach their primary social objective. EuSEF funds are also subject to specific rules in respect of fund portfolio composition, investment techniques and own funds. In particular, these funds must intend to invest at least 70% of their aggregate capital contributions and uncalled committed capital in assets that are qualifying investments and, as a consequence, do not use more than 30% for the acquisition of assets other than qualifying investments. One of the defining features of the EuSEF regime is that it does not require the appointment of a depositary.

The EuSEF Regulation applies to EU managers that are subject to registration with the competent authorities of their home Member State in accordance with the AIFM Directive and manage qualifying social entrepreneurship funds with total AuM of less than EUR 500 million. Following the aforementioned revision, the use of the EuSEF label is also open to above-threshold Alternative Investment Fund Managers (AIFMs), which continue to be subject to the requirements of the AIFM Directive while complying with certain provisions of the EuSEF Regulation (those on eligible investments, targeted investors and information requirements).

EuSEF managers can also manage and market Alternative Investment Funds which are not EuSEF funds. However, the EuSEF passport does not apply to these funds.