EUROPE Council released two further compromises on ELTIF-Regulation Background European long-term investment funds (ELTIFs) are EU-AIFs managed by EU authorised AIFMs which do not offer regular redemption before the end of the vehicle’s life and invest in long-term assets. ELTIFs benefit from an EU passport and might be marketed to retail investors across the EU. On 26 June 2013, the Commission issued a Propos- al for a regulation of the European Parliament and of the Council on ELTIFs (“the Regulation” - AVAILABLE HERE ). The Regulation shall ensure that uniform re- quirements apply to the investment and operating conditions of ELTIFs. On 17 April 2014, the European Parliament in plena- ry adopted amendments to the Commission’s pro- posal ( AVAILABLE HERE – a note from the General Secretariat of the Council to the Permanent Repre- sentatives Committee on the outcome of the Parlia- ment’s first reading is AVAILABLE HERE ). On 24 April 2014, the Presidency of the Council issued a first compromise proposal ( AVAILABLE HERE ). On 8 May 2014, the Presidency of the Council issued a second compromise proposal ( AVAILABLE HERE ). What’s in there? On 27 May 2014 and 9 June 2014, the Council of the EU published two further presidency compro- mises (10215/14 and 10583/14). The main changes from the previous versions are as follows: 1. Eligible assets: Direct holdings of real assets, unless they are se- curitised, would also form a class of eligible as- sets, if it is possible to apply the discounted cash- flow valuation method.

2. Portfolio composition and diversification: ELTIFs would only be authorized to borrow cash for the purpose of acquiring a participation in eligible investment assets to the extent that: « The ELTIF paid-up capital is not sufficient to make such acquisition, and « The cash is not used for granting a loan to a qualifying portfolio. 3. Specific provisions concerning the depositary of ELTIFs marketed to retail investors: ELTIFs marketed to retail investors would need to appoint a depositary eligible to UCITS. No right of asset’s reuse (e.g transfer, pledge, sale or lending of assets) would be granted to ELTIF’s depositaries and their delegates unless: « The reuse is executed for the account of the ELTIF; « The depositary is carrying out the instructions of the manager of the ELTIF on behalf of the ELTIF; « The reuse is for the benefit of the ELTIF and the interest of the investors; « The transaction is covered by high quality and liquid collateral received by the ELTIF under a title transfer arrangement the value of which amounts at least the value of the reused assets plus a premium. 4. Additional requirements for marketing to retail investors Instead of committing retail investors to invest a minimum of EUR 20,000 and state in a separate document from the subscription agreement that they are aware of the risk they take, ELTIFs man- agers would only be able to market ELTIF to retail investors provided that among others: « The ELTIF would be admitted to trading on a reg- ulated market or on a multilateral trading facility or on an organised trading facility; « ELTIF managers would have to act as an inter- mediary in case no buyer for a unit or share can be identified despite the ELTIF’s units or shares being admitted to trading on a secondary market; « The ELTIF manager is provided with sufficient information on the value of the retail investors’ portfolio and for retail investors whose portfolio,

composed of cash deposits and financial instru- ments, does not exceed € 500 000, the ELTIF manager would have to ensure that the retail investor does not invest an aggregate amount exceeding 5% of his portfolio in ELTIFs. 5. Transparency ELTIFs’ KID would not need to include information on the illiquid nature of the vehicle and to reflect all costs outlined in the prospectus. An ELTIF would have to provide its competent au- thorities with prospectus, any amendments and its annual report within the time period specified by these competent authorities. 6. Administrative penalties The ELTIF Regulation would no longer include pro- visions on administrative penalties applicable to breaches. 7. Borrowing of cash An ELTIF could borrow cash provided that among others it would serve the purpose of acquiring a participation in eligible investment assets and that the holdings in cash or cash equivalents of the EL- TIF would not be sufficient to acquire the partici- pation in eligible investment assets. 8. Disposal of ELTIF assets An ELTIF could reduce its capital on a pro rata ba- sis in case of a disposal of an asset, provided that such an option has been disclosed not only in the prospectus but also in the fund rules. What’s next? The Regulation needs to be adopted by the Parlia- ment and the Council.

The Regulation would enter into force 6 months after its adoption.



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