German Federal Financial Supervisory Authority publishes FAQs on ELTIF 2.0

Authorisation as an ELTIF, and approval of ELTIF managers

From a Luxembourg perspective, to authorise an AIF or a sub-fund (compartment) of an AIF as an ELTIF, an authorised EU or Luxembourg AIFM must submit an application to the Luxembourg regulator, the Commission de Surveillance du Secteur Financier (CSSF).

The application for authorizing an AIF (or its sub-fund) as an ELTIF must encompass, at a minimum, the following elements:

• the document of incorporation (articles of incorporation, limited partnership agreement);
• the name of the proposed manager of the ELTIF; and
• the name of the depositary, and if the ELTIF can be marketed to retail investors, details of the agreement with the depositary.

The approval process includes CSSF approval of the manager of the ELTIF. This requires the submission of a comprehensive application that includes the depositary agreement, information on delegation arrangements for portfolio, risk management, information about the investment strategy, the risk profile and other characteristics of the AIF/sub-fund.

For an internally managed AIF, the AIF has to be authorised as an AIFM under the AIFMD, in order to be authorised as an ELTIF.

In Luxembourg, the application for approval as an ELTIF must be made using a specific application form, generally via the CSSF’s eDesk electronic platform. As of 15 December 2023, the CSSF has communicated the availability of an updated ELTIF application form on its website. This update is aimed at streamlining and expediting new ELTIF authorisation requests and subsequent amendment requests.

The candidate ELTIF and its manager will be informed by the CSSF within two months of the submission of a complete application whether authorisation as an ELTIF, including approval for the AIFM to manage the ELTIF, has been granted.

Legal form of an ELTIF

The CSSF does not impose any specific legal form and authorises all legal forms permitted under Luxembourg law for an AIF (notably a société anonyme (public limited company), a société en commandite par actions (partnership limited by shares), a société en commandite simple (limited partnership), a société en commandite spéciale (special limited partnership), and a société à responsabilité limitée (private limited liability company).

Distribution of an ELTIF

The Luxembourg manager of an ELTIF is authorised to market the units or shares of that ELTIF to professional and retail investors in Luxembourg and in other Member States of the EEA upon notification of the CSSF in accordance with the AIFMD. The marketing notification to the CSSF must specify whether or not the manager intends to market the ELTIF to retail investors. Additional requirements apply if the ELTIF is targeting retail investors.

Moreover, an ELTIF manager is allowed to conduct pre-marketing activities, exclusively with professional investors. “Pre-marketing” refers to the provision of information or communication, direct or indirect, on investment strategies or investment ideas, to potential professional investors in order to test their interest in an ELTIF. The process of pre-marketing is subject to a specific notification procedure with the CSSF (within two weeks of the beginning of pre-marketing).

Master-Feeder and Fund-of-Fund Structures

Both the master and the feeder ELTIFs must be authorised by the CSSF. If the ELTIF is a feeder ELTIF, the application for authorisation as an ELTIF must include additional information on the relationship with the master ELTIF.

The feeder ELTIF must disclose in marketing communications that it permanently invests 85% or more of its assets in units or shares of the master ELTIF.

Authorisation as an ELTIF, and approval of ELTIF managers

From a Belgian perspective, to license an AIF or a sub-fund (compartment) of an AIF as an ELTIF, a licensed EU or Belgian AIFM must submit an application to the Belgian regulator, the Financial Services and Markets Authority (FSMA).

Although there is no specific process in place for the licensing of an AIF (or its sub-fund) as an ELTIF, at least the following elements should be submitted:

• the document of incorporation (articles of incorporation);
• the name of the proposed manager of the ELTIF; and
• the name of the depositary, and if the ELTIF can be marketed to retail investors, details of the agreement with the depositary.

If the AIFM managing the ELTIF has been licensed by the FSMA, the application for approval to manage an ELTIF shall refer to the documentation submitted in the framework of the AIFM license. An EU AIFM that applies for approval to manage an ELTIF shall provide to the FSMA with the written agreement with the depositary; information on delegation arrangements regarding portfolio and risk management and administration with regard to the ELTIF; and information about the investment strategies, the risk profile and other characteristics of AlFs that the EU AIFM is authorised to manage.

Legal form of an ELTIF

No specific legal form is imposed. Given its structing flexibility, a Belgian limited partnership (CommV/ SComm) is often most suited to set up an AIF.

Distribution of an ELTIF

The licenced Belgian manager of an ELTIF is authorised to market the units or shares of that licenced ELTIF to professional and retail investors in Belgium and in other Member States of the EEA upon notification to the FSMA in accordance with the AIFMD.

In Belgium, an AIFM can market the ELTIF to retail investors without being subject to the provisions that normally apply in the event of a public offering in Belgium. However, the specific requirements concerning the distribution and marketing of ELTIFs to retail investors as set out inter alia in article 30 of the Regulation apply.

Moreover, an ELTIF manager is allowed to conduct pre-marketing activities, exclusively with professional investors. “Pre-marketing” refers to the provision of information or communication, direct or indirect, on investment strategies or investment ideas, to potential professional investors in order to test their interest in an ELTIF. The process of pre-marketing is subject to notification to the FSMA (within two weeks of the beginning of pre-marketing).

Master-Feeder and Fund-of-Fund Structures

Both master and feeder ELTIFs must be licensed by the FSMA. If the ELTIF is a feeder ELTIF, the license application as an ELTIF must include additional information on the relationship with the master ELTIF.

The feeder ELTIF must disclose in marketing communications that it permanently invests 85% or more of its assets in units or shares of the master ELTIF.

Takeaways

Even if no ELTIF has yet been incorporated in Belgium, the ELTIF is a very welcomed fund structure in the Belgian fund structuring toolbox, especially as it facilitates an EU harmonized offering to retail investors without being subject to the provisions that normally apply in the event of a public offering in Belgium. Several ELTIFs are yet marketed in Belgium.

Authorisation as an ELTIF, and approval of ELTIF managers

From an Italian perspective, to authorise an Italian AIF or a sub-fund (compartment) of an Italian AIF as an ELTIF, an EU AIFM (authorised to manage Italian AIFs) or an Italian AIFM authorised pursuant to AIFMD must submit an application to the Bank of Italy.

The application for authorizing an Italian AIF (or its sub-fund) as an ELTIF must encompass, at a minimum (i.e. without considering ELTIF master-feeder structures), the following elements:

• the fund rules or instruments of incorporation (i.e. management rules or articles of association of the relevant AIF);
• the name of the proposed manager of the ELTIF;
• the name of the depositary, and if the ELTIF can be marketed to retail investors, the written agreement with the depositary; and
• if the ELTIF can be marketed to retail investors, a description of the information to be made available to investors, including a description of the arrangements for dealing with complaints submitted by retail investors.

Should the application be submitted by a non-Italian EU AIFM, the process also includes the approval as the manager of the ELTIF by the Bank of Italy. This requires the submission of a comprehensive application that includes: (a) the written agreement with the depositary; (b) information on delegation arrangements regarding portfolio and risk management and administration with regard to the ELTIF; and (c) information about the investment strategies, the risk profile and other characteristics of the AIFs that the EU AIFM is authorised to manage.

For an internally managed Italian AIF, the AIF has to be authorised as an AIFM under the AIFMD, in order to be authorised as an ELTIF.

In Italy, no specific application form is available for approval as an ELTIF. The application shall be submitted by means of certified email to the Bank of Italy.

The candidate ELTIF and its manager will be informed by the Bank of Italy within two months of the submission of a complete application whether authorisation as an ELTIF, including approval for the non-Italian EU AIFM to manage the ELTIF, has been granted. The term is extended to three months for internally managed Italian AIFs.

In case of first establishment of an ELTIF by a manager, the authorisation is issued by the Bank of Italy after consulting Consob on the matters listed under sub (d) above.

Legal form of an ELTIF

Italian law does not provide any specific legal form for ELTIFs which, therefore, may be established in all legal forms permitted under Italian law for an AIF (notably, a contractual mutual investment fund or a joint stock company).

Distribution of an ELTIF

The Italian manager of an ELTIF is authorised to market the units or shares of that ELTIF to professional and retail investors in Italy and in other Member States of the EU upon notification to Consob in accordance with the AIFMD, as implemented in Italy pursuant to art. 43 of Italian Legislative Decree no. 58/1998 (Italian Consolidated Law on Finance) and relevant executing regulations. The notification to Consob must specify whether the manager intends to market the ELTIF to retail investors. Additional requirements apply if the ELTIF is targeting retail investors.

Moreover, an ELTIF manager is allowed to conduct pre-marketing activities, exclusively with professional investors. “Pre-marketing” refers to the provision of information or communication, direct or indirect, on investment strategies or investment ideas, to potential professional investors in order to test their interest in an ELTIF. The process of pre-marketing is subject to a specific notification procedure with Consob (within fourteen days of the beginning of pre-marketing).

Master-Feeder and Fund-of-Fund Structures

Both the master and the feeder ELTIFs must be authorised by the Bank of Italy. If the ELTIF is a feeder ELTIF, the application for authorisation as an ELTIF must include additional information on the relationship with the master ELTIF.

The feeder ELTIF must disclose in marketing communications that it permanently invests 85% or more of its assets in units or shares of the master ELTIF.

Authorisation for managing ELTIFs

In the Netherlands, the competent authority for ELTIFs is the Dutch Authority Financial Markets (Autoriteit Financiele Markten, AFM). The authorisation process to manage an ELTIF in the Netherlands is similar to the Dutch authorisation process under the AIFMD. The AFM has not (yet) updated any forms in relation to the ELTIF authorisation process and refers to the same forms used for AIFMD authorisations. The exact forms and documentation required for authorisation may be found on AFM’s website. Authorisations are to be submitted through AFM’s digital portal.

In relation to passporting and in accordance with Article 31 ELTIFR, the AFM has provided a template notification letter for AIFMs intending to market an ELTIF to investors in other Member States.

Legal form of an ELTIF

The Dutch Financial Supervision Act (Wet op het financieel toezicht, FSA) does not impose restrictions on the legal form of an ELTIF and all legal forms (including contractual arrangements) are permitted under Dutch law. According to the central public register for ELTIFs maintained by ESMA (consulted on 4 March 2024), there are currently no Dutch based ELTIFs.

As ELTIFs are by definition EU AIFs (Article 1(1) ELTIFR), we note that AIFs are generally structured as a limited partnership (commanditaire vennootschap), a co-operative (cöoperatie), a contractual fund for joint accounts (fonds voor gemene rekening), a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid), or a public limited company (naamloze vennootschap).

Distribution of an ELTIF

The manager of an ELTIF is authorised to market the units or shares of that ELTIF to professional and retail investors in the Netherlands and in other Member States of the EEA upon notification to the AFM in accordance with the AIFMD. The template notification to the AFM requires additional information in the case of marketing to retail investors. This information relates to specific marketing requirements to ensure an appropriate degree of retail investor protection.

Where marketing or placing of ELTIFs to retail investors is done through a distributor, such distributor should comply with the relevant requirements of MiFID II and Regulation (EU) 600/2014 on markets in financial instruments (Article 30 ELTIFR).

In addition, an ELTIF manager may conduct pre-marketing activities, exclusively with professional investors. “Pre-marketing” refers to the provision of information or communication, direct or indirect, on investment strategies or investment ideas, to potential professional investors in order to test their interest in an ELTIF. Pre-marketing is subject to a specific notification form for pre-marketing with the AFM within two weeks of the commencement of pre-marketing.

Master-Feeder structures

Under the ELTIFR, it is possible for Fund-of-Fund ELTIFs to invest in target funds beyond the limitations of only ELTIFs, EuSEFs, or EuVECAs, but also EU AIFs. Under the updated Regulation, ELTIFs are also allowed to pool their assets and make use of master-feeder structures by investing in master ELTIFs (Recital 25 ELTIFR).

The Spanish regulator (CNMV) has not issued specific guidelines or Q&A on the authorisation of ELTIF in Spain. However, back in 2022 Spanish regulations were amended to make clear that Spanish AIFMs could manage, administer, market and provide other financial services to ELTIFs.

The success of ELTIFs will largely depend on having a favourable tax regime for both the ELTIF and the investors. In Spain, only certain territories of the Basque country (i.e., Alava and Gipuzkoa) have implemented a favourable tax regime for ELTIF. In fact, there are only 3 ELTIFs incorporated in Spain (the last one in 2023) and all of them are located in these territories of the Basque country.

Therefore, we hope that the legislators will work on a favourable text regime to see a development of the ELTIF industry in Spain.