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The number of authorized ELTIFs is set to surge again in the fourth quarter of 2024. “We expect the number to increase by one-third and the assets under management to rise by almost 50 percent by the end of the year,” says Michael Patzelt, Head of Sales DACH at Moventum. “The more familiar this new fund type becomes, the more advisors and investors recognize its potential.” This is also due to the very investor-friendly regulation.

However, the regulation is not yet finalized. “It’s like performing open-heart surgery,” says Patzelt. In mid-July 2024, the EU Commission issued a delegated regulation amending the ELTIF Directive. This regulation is currently under review by the European Parliament and the Council and could be rejected.

“We are currently in an interim phase,” Patzelt explains: “On the one hand, ELTIFs can already be traded under the preliminary guidelines from Brussels.” However, the final uncertainty will only disappear once the technical regulatory standards are definitively established.” The aim of Regulation (EU) 2023/606, which was already published in the Official Journal of the European Union on 15 March 2023, is clear: to make it as simple and secure as possible for retail investors to access ELTIFs while also making it as straightforward as possible for the fund initiator and providing them with sufficient flexibility.

This also includes the issue of redemptions. As with real estate funds, the assets held in ELTIFs are not always readily tradable. Therefore, the ELTIF regulation already stipulates that an open ELTIF must clearly indicate to its investors that redemptions are limited to a certain percentage of the fund’s assets. It is at the discretion of the fund manager to set the threshold, taking into account the criteria developed by ESMA. “To prevent assets from being sold below value during high redemptions, a redemption period before the end of the term should be introduced, giving the fund management the necessary time for sales,” says Patzelt. However, this very topic led to an extended exchange of opinions between the European Securities and Markets Authority (ESMA) and the EU Commission: Specifically, they discussed how to design the redemption restriction stipulated in the redemption rules as a percentage of the liquid assets.

“ESMA, as the supervisory authority, insisted on setting thresholds for funds with redemption periods of less than twelve months,” Patzelt notes. It had already introduced a 90 percent redemption limit for funds with a redemption period of less than twelve months. The European Commission recommended that 100 percent of such a fund’s assets should be redeemable at once.

Now, the EU Commission has proposed two models: One could be a redemption gate, determined by the frequency of redemption opportunities—quarterly, monthly, and so on—and the length of the redemption notice period. The second model consists of a redemption gate and a mandatory minimum liquidity requirement, both dependent on the frequency of redemption opportunities: If the minimum liquidity is undershot, the fund manager must take action to restore the threshold.

The delegated regulation adopted in July can be reviewed and approved or rejected by the EU Parliament and the Council within a maximum period of six months. “With a bit of luck, approval by the EU Parliament could still happen in October,” says Patzelt, “but no later than January 2025. However, this is almost irrelevant to investors; most are not concerned whether they are investing in a closed or open variant.”