In a bid to “increase the amount of non-bank finance available” for real assets such as infrastructure and real estate, the European Commission has unveiled a new type of investment vehicle focusing on the long term – the European Long-Term Investment Fund (ELTIF).
ELTIFs are vehicles restricted to investing in “unlisted companies needing long-term capital [and] real assets that need long-term capital to develop” in addition to two other types of existing European funds. The new funds would need to invest at least 70 percent of their money in this type of illiquid asset and will have five years to invest the 70 percent.
“Infrastructure, transport and sustainable energy projects” were all pointed out by the Commission as the types of long-term assets ELTIFs will focus on. The new funds will be regulated under the Alternative Investment Fund Managers Directive, which, among other things, will oblige them to have a depository and put limits on their use of leverage. ELTIFs are also not allowed to invest in derivatives except to limit currency risks.
“Currently, financing is often scarce and where it exists, too focused on short-term goals,” stated Michel Barnier, internal market and services commissioner. “The ELTIF is an investment vehicle that will allow professional investors and individuals to invest long-term in European non-listed companies and in long-term assets such as real estate and infrastructure projects”.
The Commission is hopeful the new fund structure will prove very attractive to institutional investors and says ELTIFs “are designed to meet the needs of […] pension funds and insurance companies […] who are prepared to see their money tied into long-term assets, such as infrastructure projects, in return for a steady income”.
However, ELTIFs will also be marketed to retail investors, the Commission pointed out.
In a statement, the Commission highlighted that Europe will need to mobilise between €1.5 trillion and €2 trillion to fund the infrastructure it needs through to 2020. It is partly due to this need – and on the back of an infrastructure market which has recorded transaction volumes of between €100 billion and €150 billion a year since 2007 – that ELTIFs were created.