ESMA Consultation Paper on Draft Regulatory Technical Standards under the Revised ELTIF Regulation

EFAMA responded to ESMA’s Consultation Paper, mentioning that the success of the newly revised ELTIF regime depends critically on the degree of flexibility that the ESMA maintains in its formulation of technical rules. The ELTIF framework has experienced remarkable expansion, witnessing a growth in the number of ELTIFs from a mere 20 in late 2021 to a substantial 95 as of August 2023, largely attributed to favorable regulatory reforms.
To ensure the sustained triumph of the ELTIF initiative, industry stakeholders advocate for redemption policies that remain adaptable. This adaptability serves two important purposes: it preserves the appeal of ELTIFs for retail investors and it enables fund managers to effectively manage liquidity. While consensus exists regarding the necessity of establishing a minimum holding period, the contention lies in the proposition of a mandatory three-year period that applies universally to all ELTIFs. This proposition is regarded as arbitrary and ill-suited to the diverse spectrum of fund terms, asset classes, and investment strategies inherent to ELTIFs.
Likewise, the proposal to institute a quarterly limit on redemption frequency is perceived as inadequate to address the wide-ranging needs of investors and the multifaceted strategies pursued by ELTIFs. Recognizing the intricacies of liquidity management, experts argue that decisions on redemption frequency cannot be isolated but should consider the liquidity profile of each ELTIF, along with the tools available for liquidity management as stipulated in fund documentation.
EFAMA further emphasizes the importance of empowering fund managers to select liquidity management tools that best suit the fund’s structure and prevailing market conditions. Meanwhile, ESMA’s suggestion of a 12-month notice period is met with concerns that it might unduly extend the waiting time for investors. The call for flexibility in policy design, following a principles-based approach, is supported due to the lack of comparable mechanisms at EU level.
Additionally, EFAMA urges the establishment of consistent cost disclosure practices across different regulatory frameworks, suggesting to allow the recently implemented PRIIPs disclosure regime time to stabilize before making further adjustments based on lessons learned. Ultimately, the revised ELTIF regime’s achievement hinges on innovative and meticulously designed ESMA rules that ensure the continuation of flexibility, enabling diverse ELTIF structures and investment strategies.