Open European Long-Term Investment Funds in Luxembourg
Open European Long-Term Investment Funds in Luxembourg
Updated on Wednesday 26th April 2023 Rate this article
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In order to sustain companies in need of financial assistance, Luxembourg has enabled a new regime which will help these companies to access funds without appealing to banks or other financial institutions. The regime is called the European Long-Term Investment Fund (ELTIF) and is part of a growth plan run under the Europe 2020 Strategy scheme meant to help the European economy. The ELTIF is an alternative investment fund (AIF) designed for retail and professional investors and must be managed by an authorized manager, according to the Alternative Investment Fund Managers Directive (AIFMD).Characteristics of Luxembourg European long-term investment funds
In order to be considered an ELTIF, a fund must invest in certain types of assets, in the first place. Secondly, the fund must be established for a limited period of time. During this time, the investors cannot claim their money back. ELTIFs in Luxembourg can only invest in companies that have not been listed on the Stock Exchange and in real assets, also known as “eligible investment assets”. Compartmented, 70% of the amount must be invested in these assets, while the other 30% can be invested in other assets which must be compatible with an UCITS fund.
Our lawyers in Luxembourg can provide with more information about the ELTIF scheme.
Eligible investment assets under the ELTIF regime in Luxembourg
The ELTIF Regulation specifies that Luxembourg European long-term investment funds may only invest the following eligible assets:
- debt instruments released by a qualifying portfolio company;
- loans issued by the ELTIF;
- direct and indirect holdings worth at least 10 million euros;
- equity or quasi-equity instruments.
Equity and quasi-equity instruments must have been issued by:
- a qualifying portfolio company which was bought by the ELTIF through the secondary market or from a third party;
- a qualifying portfolio company in exchange for equity which was bought by the ELTIF;
- an undertaking of which the qualifying portfolio is a subsidiary owned by a majority.
Qualifying undertakings have been defined as other funds than collective investment ones, which have not been traded on a primary capital market and has a market capitalization of maximum 500 million euros.
ELTIF authorization and management
The ELTIF must receive an authorization for functioning from the relevant authority operating in the Member State in which it is incorporated. The European long-term investment fund needs to be managed by an authorized Alternative Investment Fund Manager or by an Alternative Investment Fund. Once the ELTIF receives its authorization, it is valid for all of the EU Member States.
Although the ELTIF is allowed to have a large number of eligible assets and is permitted a number of activities it cannot short sell assets, take direct or indirect exposure to commodities, it cannot perform securities lending or borrowing and it cannot repurchase transactions. The fund has a defined “life” during which no redemption rights can be enforced.
If you want to set up an European long-term investment fund and need assistance, do not hesitate to contact our law firm in Luxembourg.
