The European Long-Term Investment Fund (ELTIF) is a pan-European regime for Alternative Investment Funds (AIFs) for long-term investments, necessarily managed by an EU-licensed alternative investment fund manager (AIFM). Introduced under Regulation (EU) 2015/760 and substantially revised by Regulation (EU) 2023/606, the regime is intended to support investments in the real economy while providing a harmonised product that can be distributed across the European Union (EU)/ European Economic Area (EEA). The revised framework is more flexible and commercially relevant as compared to the original regime. Notably, in Cyprus, no ELTIFs have been established to-date but the structure has already been widely used in other EU jurisdictions such as Ireland, Luxembourg, France, Italy and Spain.

ELIGIBLE INVESTMENTS

The range of eligible investments is broad and suited to long-term strategies. Eligible assets include equity and quasi-equity instruments, debt instruments, loans granted by the ELTIF to qualifying portfolio undertakings, units or shares of other eligible collective investment undertakings, real assets, qualifying securitisations and certain green bonds. For Cyprus, the inclusion of real assets as an eligible ELTIF investment is especially important, given the potential use of ELTIFs for fundraising from retail investors in sectors such as real estate.

At a legal level, the framework establishes uniform rules on the authorisation, investment policies and operating conditions of EU AIFs, or compartments of EU AIFs, marketed as ELTIFs. An ELTIF may only be marketed in the Union once it has been authorised in accordance with the regulation, and authorised ELTIFs are included in a central public register. The regime gives the ELTIF vehicle a distinct EU identity, as opposed to a purely domestic or jurisdiction specific one.

‘PASSPORTING’

One of the main advantages of the ELTIF is its EU/EEA passport. Once authorised by the competent authority in the home Member State, an ELTIF can benefit from the use of the AIFMD marketing passport. In particular, the home regulator may need to notify host regulators in the relevant target countries, after which the fund can begin raising capital cross-border. This is highly relevant for Cyprus, where fund promoters often seek efficient access to investors outside the domestic market.

POTENTIAL FOR RETAIL INVESTORS

A major innovation of the revised framework is the creation of a more differentiated regime between ELTIFs marketed solely to professional investors and ELTIFs that can also be addressed to retail investors. One can argue that the rationale behind the reform is that retail investors should benefit from a higher level of protection.

Indicatively, retail investor protection measures are a key feature of the revised ELTIF regulatory framework. Suitability assessment requirements apply, and where a retail investor is considered unsuitable but still wishes to subscribe, the investor’s express consent must be obtained. Additional investor protection measures apply, including cancellation rights, complaint-handling procedures and record-keeping obligations.

PORTFOLIO CHARACHERISTICS

The ELTIF framework includes portfolio composition and concentration limits intended to support long-term investment while maintaining diversification and risk control. At least 55% of capital must be invested in eligible assets, with limits also applying for exposures to single qualifying undertakings, real assets, eligible funds, securitisations and counterparties.

The revised regime also provides for greater flexibility where ELTIFs are marketed solely to professional investors, as certain of the aforementioned investment limits and diversification rules do not apply.

The revised liquidity framework is an important feature of the updated ELTIF regime. As a general rule, investors cannot request redemption before the end of the ELTIF’s life given that ELTIFs are usually established as close-ended funds. However, redemptions may be permitted during the life of the fund subject to specified conditions that may be prescribed in the funds’ offering documents upon establishment. While the regulation does not impose for a set life duration, it requires the life of the ELTIF to be compatible with its long-term strategy and the life cycles of its underlying assets.

POTENTIAL FOR CYPRUS

For Cyprus, the possible advantages are therefore clear. The ELTIF offers a recognised EU label, access to the cross-border passport, compatibility with asset classes with long-term life cycles, such as real estate, and a structure that can be tailored for either professional-only or retail-inclusive distribution. While the Republic has not yet produced a Cyprus domiciled ELTIF, the fact that the model has already been used elsewhere in the EU reduces first-mover uncertainty. In that context, the revised ELTIF regime may represent a credible opportunity for Cyprus to expand its cross-border funds offering with a product specifically designed for long-term capital formation.