While the European private equity industry is still digesting the new requirements set forth by the Alternative Investment Fund Managers Directive and the related regulation on venture capital funds, a new regulatory framework is already on its way. In June, the European Commission published its proposal for a regulation on European Long-term Investment Funds (ELTIFs).
In brief, the ELTIFs are intended to fill out the gap between liquid UCITS-regulated instruments available to the public, and the closed-ended funds and other AIFMD-regulated investments which are mostly offered to professional investors and which might not be freely redeemed. Combining elements from both categories, the ELTIFs would be available to both retail and professional investors, but the invested money would be bound during a specified investment term which could even be longer than 10 years. The long fixed investment term would be justified as the ELTIFs are intended to invest in long-term illiquid assets such as infrastructure.
Allowing consumers invest in such illiquid assets is considered to necessitate a number of requirements and restrictions. For example, only a licensed AIFM could manage and offer an ELTIF. Many restrictions would apply in relation to diversification and borrowing and the assets in which an ELTIF would be permitted to invest. No partnership structures would be allowed to be marketed to retail investors. More details on the proposed regulation can be found e.g. in the Proposal of the European Commission.
As offering an investment under the framework of an ELTIF would be entirely voluntary, the introduction of ELTIFs could actually be positive news for the fund industry. Despite the heavy regulation and restricted scope of applicability, the concept might still enable offering new kinds of investment products to a broader group of investors. Whether the ELTIFs will really be enacted upon and with which exact content will depend on the political discussions and lobbying process.
As regards the implementation of the AIFM Directive, Finland is behind schedule. The draft law is being finalized and is expected to enter into force by the end of this year.