Europe’s pan-European asset management body, Efama, has called for investor flexibility in the revamped Eltif 2.0 by Esma.
European Securities and Markets Authority (Esma) launched a consultation paper on May 23 proposing level 2 regulatory technical standards within the updated European long-term investment fund (Eltif) regulation, outlining guidelines for redemption policy, asset valuation criteria, secondary market protocols, cost disclosures and matching system.
Esma intends to align the release of a final report containing draft technical standards with the launch of Eltif 2.0 by January 10, 2024.
Highlighting the growth of Eltifs from 20 in late 2021 to 95 as of August 2023, the European Fund and Asset Management Association (Efama) stated that “supportive and not limiting” rules will be crucial to the asset class’s future success.
Although agreeing with Esma’s criteria to determine a minimum holding period, Esma expressed concerns about setting a compulsory and “arbitrary” period of three years, claiming it may “seriously jeopardise” the viability of ELTIF offerings to retail investors and limit their access to illiquid asset classes with attractive returns.
Setting a mandatory maximum quarterly redemption frequency would also not accommodate the broad spectrum of Eltif investment strategies, it added.
“Redemption frequency should not be evaluated in isolation without the knowledge of Eltif’s liquidity profile and the available liquidity management tools as described in the fund documentation,” it stated.
Calling Esma’s suggestion of a 12-month notice period “excessively lengthy”, Esma recommended that fund managers should be able to choose the most appropriate liquidity management tools in bothstandardl and stressed market conditions, urging “flexibility” for investors.
A common approach to cost disclosures in the future would help both fund managers and end-investors, rather than the current “piecemeal” approach within Eltif, packaged retail and insurance-based investment products, markets in financial instruments directive II and pandemic emergency purchase programme regulations, Efama concluded.
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