The amending ELTIF Regulation envisages that ESMA will develop regulatory technical standards (RTS) to determine matters such as the circumstances in which the life of an ELTIF is considered compatible with the life-cycle of each of its individual assets, as well as different features of the redemption policy of the ELTIF.
On 19 December 2023, ESMA published its final report setting out draft RTS which were then submitted to the European Commission (EC) for adoption. On 8 March 2024, the EC sent a letter to ESMA outlining its intention to adopt the RTS, with specific amendments, and encouraged ESMA to consider the individual characteristics of different ELTIFs to build a more proportionate approach to the calibration of requirements relating to redemptions and liquidity management tools.
On 22 April 2024, ESMA, in response to the EC, published an opinion which suggests making limited changes to the initial draft RTS. Those changes are described below.
Liquidity
Taking account of the EC’s recommendations, ESMA has suggested changes to the minimum percentage of liquid assets that an open-ended ELTIF must hold based on the number of days’ notice an investor must provide if it wishes to redeem its units in the ELTIF. Changes have also been proposed to the maximum percentage of liquid assets that can be redeemed on any one dealing day, again based on the ELTIF’s redemption notice period. The changes referred to in this paragraph are shown in the table below:
| Redemption Notice period | Minimum percentage of liquid assets | Maximum percentage referred in Article 18(2)(d) |
|---|---|---|
| Less than 12 months to 6 months (included) | 10% | 90% |
| Less than 6 months to 3 months (included) | 15% | 67% |
| Less than 3 months to 1 month (included) | 20% | 50% |
| Less than 1 month | 25% | 20% |
Redemption Gates
ESMA has proposed that an ELTIF’s AIFM may use redemption gates, in particular if the amount of liquid assets is not sufficient to cover a reasonable expected redemption.
Minimum Holding Period
ESMA is still of the view that the setting of a minimum holding period is one of the key aspects of the redemption policy of the ELTIF and has therefore retained its view that the ELTIF AIFM may select the minimum holding period that is best adjusted to an individual ELTIF, based on criteria set out in the RTS.
Material Change to Redemption Policy
ESMA proposes that an ELTIF’s national competent authority should be notified at least one month before a material change is proposed to be made to the redemption policy of an ELTIF.
Liquidity Management Tools
ESMA has conceded that an ELTIF’s AIFM should be able to select and implement one or more liquidity management tools (LMTs) from the full list of LMTs included in AIFMD II.
Next Steps
The EC must now consider the revised RTS from ESMA. The EC may adopt the RTS with the amendments it considers relevant or reject it. The European Parliament and the Council may object to an RTS adopted by the EC within a period of three months. Accordingly, the RTS may not enter into effect until Q4 this year.
For more details, please contact John Aherne, Niall Crowley or your usual William Fry contact.
