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BackOn Wednesday this week, Commissioner Barnier presented a first proposal for an investment fund, which shall make it easier for investors to make long-term investments in companies and infrastructure projects. These European Long-Term Investment Funds (ELTIF) help to invest in companies, which require funds over a longer period. This proposal is based on a consultation process, which was initiated at the end of March by a Green Paper on the long-term financing of the European economy. The Commission draft for this new fund was presented to the heads of state and government at the current Council Summit, where financing the real economy was the main issue apart from combatting youth unemployment.
What are long-term investments? According to the Commission, these concern expenditure, which sustainably increase the productive capacity of the economy and include infrastructures for energy, transport and communication as much as they do technologies for climate protection. However, these investments have to be financed, which - so the argumentation of the Commission - had only been a limited success since the economic and financial crisis. Hence, the key question therefore is, how one could achieve that existing savings in the EU could be better made available for these important financings. The proposed funds shall make it possible to channel private assets more efficiently and effectively in order to offer more financing options as an alternative to banks. It was important to ensure long-term financing of the real economy commented Internal Market and Services Commissioner Barnier, because firstly, there were currently not enough financing options for companies and secondly, because existing funds where frequently only used for short-term targets. ELTIF were investment tools, which shall enable investors to invest in non-listed companies and also in long-term values such as real estate or and infrastructure projects.
The now proposed ELTIF were already announced in the Single Market Act II in October 2012 and mentioned again in the Green Paper on the long-term financing of the European economy. Subsequently, there have been public consultations (the link to the AK Position is attached), discussions with numerous organisations and targeted consultations with market participants to enable an impact assessment of the funds (available on the homepage of DG Internal Market and Services). ELTIF have been structured in such a way that they meet the requirements of both private and institutional investors: these make funds available for infrastructure projects in exchange for steady revenue and commit themselves for years. This shall enable the EU to achieve its self-imposed targets (“EU 2020” and beyond), in particular the imminent and necessary investments in the energy infrastructure. In accordance with Commission calculations, between 1,500 and 2,000 billion Euros to finance European infrastructure projects will be needed until 2020.
But what exactly is this about? ELTIFs invest in illiquid assets, which are difficult to buy and sell. Companies can rely on the fact that funds they have received will be available to them during the entire period, they have agreed with investors. The effect of ELTIF is based on the fact that investors cannot withdraw their funds as they wish. They can only access their funds when the determined deadline - 7 to 10 years are under discussion - has expired. The draft Regulation of the Commission also defines and explains that funds will be spread (mitigating the risk) and that investors have to be provided with detailed information. ELTIF managers have to meet the requirements of the Alternative Investment Fund Managers Directive (AIFMD), which in turn shall guarantee useful investor protection. However, the aim of this Regulation is also to harmonise the currently rather complex and fragmented market with regard to such financing tools - if they exist at all - for all of Europe.
Further information:
Temporary proposal of the EU Commission
Consultation of the Chamber of Labour on the Green Paper (only in German)
The now proposed ELTIF were already announced in the Single Market Act II in October 2012 and mentioned again in the Green Paper on the long-term financing of the European economy. Subsequently, there have been public consultations (the link to the AK Position is attached), discussions with numerous organisations and targeted consultations with market participants to enable an impact assessment of the funds (available on the homepage of DG Internal Market and Services). ELTIF have been structured in such a way that they meet the requirements of both private and institutional investors: these make funds available for infrastructure projects in exchange for steady revenue and commit themselves for years. This shall enable the EU to achieve its self-imposed targets (“EU 2020” and beyond), in particular the imminent and necessary investments in the energy infrastructure. In accordance with Commission calculations, between 1,500 and 2,000 billion Euros to finance European infrastructure projects will be needed until 2020.
But what exactly is this about? ELTIFs invest in illiquid assets, which are difficult to buy and sell. Companies can rely on the fact that funds they have received will be available to them during the entire period, they have agreed with investors. The effect of ELTIF is based on the fact that investors cannot withdraw their funds as they wish. They can only access their funds when the determined deadline - 7 to 10 years are under discussion - has expired. The draft Regulation of the Commission also defines and explains that funds will be spread (mitigating the risk) and that investors have to be provided with detailed information. ELTIF managers have to meet the requirements of the Alternative Investment Fund Managers Directive (AIFMD), which in turn shall guarantee useful investor protection. However, the aim of this Regulation is also to harmonise the currently rather complex and fragmented market with regard to such financing tools - if they exist at all - for all of Europe.
Further information:
Temporary proposal of the EU Commission
Consultation of the Chamber of Labour on the Green Paper (only in German)