On 5 December 2025, the ESMA published clarifications addressing key European Long Term Investment Fund ("ELTIF") industry questions submitted to the European Commission (“the Commission”) on the structuring of ELTIFs and their managers. The primary objective was to resolve uncertainties surrounding asset eligibility, fund structuring, liquidity management and cross-border distribution, providing fund managers with enhanced operational possibilities.
Asset eligibility and structural flexibility
The Commission has confirmed in ESMA_QA_2470 that managers may use a single asset to meet both the eligible investment criteria and the liquidity requirements simultaneously. This eliminates the need to separate portfolios into distinct "eligibility" and "liquidity" categories, simplifying portfolio construction and improving operational efficiency.
The Commission clarifies, in ESMA_QA_2468, that special purpose vehicles (SPVs), holding companies, and other intermediary entities are treated as transparent conduits rather than investments in their own right. As these intermediary structures are treated as transparent, the ELTIF’s portfolio composition and diversification requirements apply solely on a look-through basis to the underlying assets held by such vehicles. Accordingly, intermediary entities do not need to qualify as alternative investment funds or meet qualifying-portfolio-undertaking criteria.
In a more practical view, this means that for ELTIFs investing in European mid-market companies via a Luxembourg holding company, only the underlying operating company investments must satisfy the qualifying-portfolio-undertaking requirements. This approach from the Commission prioritises the substance of an ELTIF's investment strategy over the technical form of holding structures.
ESMA_QA_2470 also confirms that ELTIFs may invest directly in non-EU Alternative Investment Funds ("AIFs") only where the fund meets the eligibility requirements of Undertakings for Collective Investment in Transferable Securities’ ("UCITS") Article 50(1)(e). This strongly limits direct investment to a narrow category of highly regulated non-EU retail mutual funds.
Liquidity management and redemption mechanics
ESMA_QA_2471 confirms that both closed-ended and open-ended ELTIFs may temporarily exceed certain regulatory limits during capital-raising or redemption periods for a period of up to twelve months.
It was also clarified that requirements designed specifically for closed-ended structures (such as borrowing maturing before the fund's termination date) do not apply to open-ended ELTIFs, which have no fixed maturity.
Managers may also temporarily fall below minimum liquidity thresholds due to market movements or redemptions, provided they take prompt corrective action, typically before the next redemption window. Corrective measures may include retaining income, holding subscription proceeds, calling investor commitments, or disposing of assets. During this remediation period, the fund may continue to process redemptions while restoring regulatory compliance.
In addition, the Commission clarifies several practical flexibilities:
- ESMA_QA_2479 clarifies that where existing investors transfer units directly to new investors, only transfer fees apply. Anti-dilution levies are not permitted, as no units are issued or cancelled.
- ESMA_QA_2478 specifies that managers may calculate minimum holding periods from the fund's launch date, from each individual subscription, or from each capital contribution. Rolling holding periods are permitted for evergreen structures.
- ESMA_QA_2477 confirms that daily valuation and redemption cycles are allowed, provided the fund has adequate operational systems and liquidity.
- ESMA_QA_2476 states that highly predictable future income streams such as interest payments, scheduled repayments, or contractual amortisations may be considered when determining redemption capacity, provided their receipt is sufficiently certain.
Authorisation or establishment requirements for ELTIFs packaged in insurance products or pension/savings plans
ESMA_QA_2481 confirms that Member States cannot impose additional requirements beyond those set out in the ELTIF Regulation when ELTIFs are packaged in insurance products or embedded in pension or savings plans. Specifically, Member States may not require ELTIFs to be domiciled or authorised in a particular jurisdiction as a condition for eligibility in such products.
Such requirements would violate Article 1(3) of the ELTIF Regulation, which prohibits Member States from adding further requirements in the field covered by the Regulation, Article 3(1), which establishes EU-wide passport validity for authorised ELTIFs, and Article 5, read in conjunction with the EU Treaty principles of non-discrimination, market access and cross-border service provision. Member States therefore cannot impose barriers such as requiring ELTIFs to obtain authorisation or establish a local presence in their jurisdiction as a precondition for inclusion in insurance-wrapped or pension-embedded investment products.
Through ESMA_QA_2481, the Commission upholds European principles of non-discrimination, market access, and cross-border service provision, ensuring that ELTIFs can be offered in insurance or pension/savings products without being subject to additional national restrictions.
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