On March 23rd 2018, Delegated Regulation (EU) 2018/480 (“Level 2 Regulation”) aimed at supplementing the European Long Term Investment Fund Regulation (“ELTIF”) (Regulation (EU) 2015/760) (the “ELTIF Regulation”) was published.
The Level 2 Regulation sets out the circumstances in which the use of financial derivative instruments (“FDIs”) can be considered as solely serving the purpose of hedging the risks inherent in other investments of an ELTIF. Such FDIs must meet all of the following criteria:
- FDIs shall only be used for hedging risks arising from exposures to assets referred to in the ELTIF Regulation; this purpose shall be considered fulfilled where the use of that FDI results in a verifiable and objectively measurable reduction of such risks at the ELTIF level. Where FDIs to hedge the risks arising from the exposure to the assets referred to above are not available, FDIs with an underlying of the same asset class may be used.
- FDIs used to provide a return for the ELTIF shall not be deemed to serve the purpose of hedging the risks.
- The manager of the ELTIF shall ensure that the FDIs used to hedge the risks inherent to other investments of the ELTIF reduce the risks at the ELTIF level, including in stressed market conditions.
Sufficient length of the Life of the ELTIF
The Level 2 Regulation sets out the conditions pursuant to which the life of an ELTIF shall be considered sufficient in length to cover the life-cycle of each of the individual assets of the ELTIF.
Disposal of ELTIF Assets
Pursuant to the ELTIF Regulation, the ELTIF shall adopt a schedule for the orderly disposal of its assets. That schedule should include (a) an assessment for the market for potential buyers and (b) a valuation of the assets to be divested. The Level 2 Regulation sets out criteria to be used in assessment of these criteria, including consideration of legislative and political risks that could affect the market for potential buyers, and that the valuation of the assets to be divested should be concluded no more than 6 months before the deadline for disclosure of the schedule.
Specifications on the facilities available to retail investors
For those ELTIFs marketing shares or units to retail investors there is a requirement to provide facilities for such retail investors.
The Level 2 Regulation provides that the manager of an ELTIF shall put in place facilities in order to perform an exhaustive list of tasks including processing subscription, payment, repurchase and redemption orders, providing information and facilitating the exercise of investors’ rights.
Regarding the technical infrastructure of the facilities, the manager of the ELTIF shall ensure that the facilities perform their tasks in official languages of the Member States where the ELTIF is marketed; and perform their tasks in person, by telephone or electronically.
The manager of an ELTIF shall ensure that the facilities are performed by one or more entities which are either the manager of the ELTIF or a third entity subject to regulation governing the tasks to be performed.
The Delegated Regulation adopted on December 4th 2017 entered into effect on April 12th 2018. Transitional provisions are provided allowing existing ELTIFs authorised under the ELTIF Regulation before April 12th 2018 to comply with the Delegation Regulation from May 1st 2019 only.