Pushing Long-Term Investment

The European Commission has proposed a new type of collective investment framework that it says would make it easier for investors to put money into companies and projects that need long-term capital.

The purpose is to increase the amount of non-bank finance that is currently available to major projects such as infrastructure.

The Commission believes that this is vital in order to kick-start the economy. An estimated €1 500 to €2 000 billion will be needed to finance infrastructure project needs alone in Europe up to 2020.

In order to qualify as a European Long-Term Investment Fund (ELTIF), new funds would have to meet strict rules designed to protect both investors and the projects and enterprises they invest in.

Aims and Objectives

Barriers to investment with a long term perspective need to be tackled at the EU level, says the Commission. This is particularly the case for assets such as infrastructure projects, which depend on long term commitments.

These assets depend, in part, on what is often called 'patient capital'; these kind of investments 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.

This then is the primary objective of the ELTIF proposal: to provide a source for long-term financing that will benefit the European economy. The Commission believes there is also considerable investor interest in having an opportunity to invest in long-term assets that either appreciate over their life cycle (such as small or midsized companies) or that produce regular income throughout the holding period (such as infrastructure assets).


The proposed Regulation on ELTIFs provides general rules, such as the subject matter and scope of the proposed fund framework and outlines the authorisation procedure. The proposal makes clear that the requirements contained in the Regulation are exhaustive: Member States will not be able to amend the Regulation at national level.

Furthermore, the proposal makes clear that the designation 'European Long-term Investment Funds' (ELTIFs) would 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.

ELTIF Investments

The proposal contains rules on permissible investment policies to be pursued by an ELTIF. These relate to issues such as eligible investments, portfolio composition and diversification, conflict of interest, concentration and cash borrowing.

There are two categories of financial assets that an ELTIF can invest in: long-term assets and assets listed in the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. ELTIFs can only invest in unlisted companies needing long-term capital, real assets that need long-term capital to develop them, European Venture Capital Funds (EuVECA), and European Social Entrepreneurship Funds (EuSEF).

An ELTIF cannot engage in short selling of assets, gain exposure to commodities, enter into securities lending or securities borrowing agreements. Neither can an ELTIF enter into repurchase agreements or use financial derivative instruments unless these instruments are used for hedging purposes.

Managing an ELTIF

An ELTIF can only being offered by a manager who is authorised under the Alternative Investment Fund Managers (AIFM) Directive. The AIFMD puts in place a stringent set of rules for anyone managing alternative investment funds. These requirements stipulate that key personnel must be ‘fit and proper’.

The proposal also 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.

Portfolio Composition

The proposal contains 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.

Because of the long-term nature of the assets they will invest in, it may take ELTIFs a number of years to fully invest all of the money in the fund. The Commission believes that the rules should not force ELTIFs to invest in assets that are not suitable just to meet a deadline, so ELTIFs would have up to five years to invest at least 70% of the money. They can have 30% in other assets, to provide the ELTIFs with some flexibility regarding when to sell assets or replace them with new ones.


The proposal contains transparency rules where ELTIFs are being advertised to investors. For example, it would oblige 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 would inform the investors about the special nature of the long-term investment into an ELTIF. An ELTIF must run for a specified period of time during which investors do not have the right to get their money back. For an ELTIF, one of the most important risks that must be clearly explained will be that any investment is locked away for the life of the ELTIF.

ELTIF managers would also have to disclose in a detailed way to the investors all costs attached to the fund.


There are also rules laid out applicable to fund managers for marketing units or shares of an ELTIF to professional and retail investors. The proposal requires managers of ELTIFs to have facilities in place in each Member State where they intend to market their ELTIFs.

The proposal 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.


The proposal sets out rules on supervision of ELTIFs. It clarifies the respective roles of the competent authorities of the ELTIF and of the manager of the ELTIF, and states that the powers of the competent authorities under the UCITS and AIFM Directives should be exercised also with respect to the proposed Regulation.

Supervisory authorities should have a system in place in order to analyse and authorise applications for funds to be designated as ELTIFs. Home Member State supervisors would be responsible for ensuring ELTIFs meet all the requirements of the regulation at all times.

Where an ELTIF is marketed in other Member States, it would be the home Member State supervisor's job to pass on all relevant information to the other state's supervisor, at which point the ELTIF becomes eligible to be marketed to investors in that country.


The EU would not fund ELTIFs, as the goal is for these new funds to provide a framework for private money to be channelled into companies and projects that are not listed on a stock exchange. ELTIFs will not be eligible for any kind of grant money available from European institutions.

The Commission emphasises however that this would not prevent ELTIFs from investing in companies and projects that have received some kind of EU funding.

Role of Member States

The creation of the framework to create ELTIFs is one of the objectives of the Single Market Act II. It would create a single, harmonised set of rules for ELTIFs. As this is a Regulation and is therefore directly applicable to Member States, Member States would not have to transpose this into their national laws.

However, the proposal would impose some limited requirements on Member State supervisory authorities, which will depend on whether they are the home country where the manager creating and marketing the ELTIF is based or another Member State in which the ELTIF is being sold.

Next Steps

This proposal will now go to the Council and the Parliament. It will enter into force 20 days following its publication in the EU’s Official Journal.

The Commission has pledged to start a review of the application of this Regulation no later than three years after its entry into force.