MEPs want to revive European long-term investment funds
The Economic and Monetary Committee adopted new rules for long-term investment to facilitate the flow of funds towards the real economy, including green and digital priority areas.
On Monday, the committee adopted the uniform rules on the authorisation, investment policies and operating conditions for European long-term investment funds (ELTIFs) with 43 votes to 3.
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Michiel Hoogeveen (ECR, NL) the lead MEP said: “While the legislative framework for European long-term investment funds (ELTIFs) was adopted in 2015, so far their market remains small. This is despite ELTIFs’ potential to provide retail investors access to assets such as infrastructure projects, real estate and SMEs through a safe, well-diversified and well-managed product that is subject to appropriate regulatory oversight and investor protection safeguards.
The Parliament position voted in ECON today aims at accelerating the uptake of ELTIFs and thus ensuring more financing of long-term projects throughout the Union. To make the ELTIF industry more vibrant, the Parliament negotiating team defends bold and ambitious improvements to the ELTIF framework, which should enable more investments in for example technology and sustainable projects, increase participation of retail investors, and grant fund managers more flexibility in setting up ELTIFs.”
Protecting Investors
All ELTIFs marketed in the EU have to be authorised. In addition to this, MEPs want the European Securities and Markets Authority ESMA to keep and update quarterly a central public register of authorised ELTIFs with updated links to their annual reports and where available, the Key Information Document, so that investors can analyse and compare existing ELTIFs.
While MEPs agreed to make it easier for ELTIFs to borrow cash in foreign currencies, they decided that ELTIFs marketed to retail investors should be permitted to borrow cash amounting to up to 70% of the net asset value (NAV) of the ELTIF (for professional investors it should be extended to 100%). Retail investors should also be protected from being charged unjustified additional costs and given a clear written alert informing them that investing an amount exceeding 10% of their financial instrument portfolio in ELTIFs could constitute excessive risk taking in case an ELTIF is considered unsuitable for a retail investor.
Finally, MEPs propose removing existing tax barriers and introducing tax incentives, in order to ensure an adequate level playing field across the EU that paves the way for a truly cross-border market for ELTIFs.
Greener investments
As hundreds of billions of euros in additional investments will be needed to cover the long-term financing gap in the European Union and to reach the 2030 energy and climate targets, MEPs want to create an optional sub-category of ELTIFs marketed as environmentally-sustainable to collect capital from investors looking for sustainable investments. Such ELTIFs should be subject to stricter requirements, invest exclusively in assets that meet the taxonomy obligations and disclose what share of their assets complies with these requirements to avoid green washing.
MEPs believe it is necessary to clarify that ELTIFs can also invest in European green bonds. To this end, they propose complementing the existing rules so that green bonds and financial products that aim to make sustainable investments are explicitly included in the list of investment assets eligible for ELTIFs.
Next steps
The ECON Committee negotiators are now ready to start talks with the Council, which has already adopted its position.