It is possible to distribute retail ELTIF in Italy with the same arrangements as those used for UCITS
The ELTIF or “European Long-Term Investment Funds” were introduced by the Regulation (EU) 2015/760 (the “ELTIF Regulation”) with the purpose of facilitating the offer of some types of AIFs to retail investors. The ELTIF Regulation underwent major changes in 2023, when the Regulation (EU) 2023/606, that entered into force in January 2024, introduced new provisions addressing, inter alia, the eligible investments, the diversification of the portfolio, the redemptions and the minimum investment amounts. It seems that with the changes of 2023, the ELTIFs eventually gained the appeal for the retail investors that was missing in the original text of 2015.
Accordingly, many players are launching ELTIF products for retail investors to pair the offer of UCITS funds – that focus on the regulated markets – with products like the ELTIF that look at the private markets.
In this context, we would like to give some details from a regulatory and market practice standpoints on the retail distribution of EU ELTIFs in Italy.
Unlike the UCITS, which are governed by a specific Directive (2009/65/EC, as amended – the “UCITS Directive”), the ELTIFs have a more complex regulatory framework whereas they are disciplined by both a Directive (2011/61/EU, as amended – the “AIFMD”) and a Regulation, i.e., the ELTIF Regulation. Accordingly, in regulating the ELTIFs and their distribution, the member States will have to combine the rules directly applicable of the ELTIF Regulation with the domestic regulations transposing the AIFMD. In addition, there are some (non-material) issues of co-ordination between the ELTIF Regulation and the Directive (EU) 2019/1160 (the “CBDF Directive”) that amended the AIFMD in relation to the cross-border distribution.
The cross-border retail distribution of ELTIFs is governed by article 31, paragraphs 2, 3, 4, 5 and 7, of the ELTIF Regulation: these rules provide for a derogation to the system of the AIFMD by extending the Article 32 passport under the AIFMD – originally intended only for the professional marketing of the AIFs – to the offer to retail investors. Otherwise, the retail marketing of AIFs (ex-ELTIF) is in general governed by article 43 of the AIFMD, which allows the “host” member States to introduce restrictions, including – as it is the case of Italy – a local authorization.
The ELTIF Regulation had another important rule on the retail marketing of ELTIF, i.e., its article 26, that required to “put in place facilities available for making subscriptions, making payments to unit- or shareholders, repurchasing or redeeming units or shares and making available the information which the ELTIF and the manager of the ELTIF are required to provide”.
The above mentioned “issues of co-ordination” consists of the fact that also the CBDF Directive introduced a provision (article 43a on the setting up of “investors facilities” for the retail marketing of AIFs. Said article 43a of the AIF also reads “Without prejudice to Article 26 of Regulation (EU) 2015/760 […]”: the issue is that article 26 of the ELTIF Regulation was abrogated by the Regulation (EU) 2023/606. However, this is not necessarily a problem, because the co-existence of two provisions on the investors’ facilities – one in the ELTIF Regulation and the other in the AIFMD – would have caused overlapping and difficulties in determining the requirements actually applicable. Accordingly, it is sufficient to ignore the reference to article 26 of the ELTIF Regulation made by article the new 43a of the AIFMD.
This said, the regulations applicable to the retail marketing of EU ELTIF in Italy are both in the AIFMD (as transposed) and in the ELTIF Regulation (directly applicable per se): in particular, the investors’ facilities are those set out in the new article 43a of the AIFMD introduced by the CBDF (that apply to all the AIFs), while the rules on the retail passporting will be those specific for the ELTIF provided in the above-mentioned article 31, paragraphs 2, 3, 4, 5 and 7, of the ELTIF Regulation, that prevail over the general provisions of article 43 of the AIMD for the principle “lex specialis derogat legi generali”.
Looking closer, the regulatory framework applicable to the cross-border retail distribution of the ELTIF is very similar to the one for the UCITS to the extent both of them are based on: I) passport procedure with a regulator-to-regulator notification, and (ii) retail marketing subject to the setting up of the investors’ facilities.
Regarding point (ii), the tasks of the facilities for the UCITS and the retail AIF/ELTIF are virtually the same – see table below:
| UCITS | AIF/ELTIF |
| […] Member States shall ensure that a UCITS makes available, in each Member State where it intends to market its units, facilities to perform the following tasks: | […] Member States shall ensure that an AIFM makes available, in each Member State where it intends to market units or shares of an AIF to retail investors, facilities to perform the following tasks:
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| (a) process subscription, repurchase and redemption orders and make other payments to unit-holders relating to the units of the UCITS, in accordance with the conditions set out in the documents required pursuant to Chapter IX;
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(a) process investors’ subscription, payment, repurchase and redemption orders relating to the units or shares of the AIF, in accordance with the conditions set out in the AIF’s documents; |
| (b) provide investors with information on how orders referred to in point (a) can be made and how repurchase and redemption proceeds are paid; | (b) provide investors with information on how orders referred to in point (a) can be made and how repurchase and redemption proceeds are paid;
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| (c) facilitate the handling of information and access to procedures and arrangements referred to in Article 15 relating to the investors’ exercise of their rights arising from their investment in the UCITS in the Member State where the UCITS is marketed;
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(c) facilitate the handling of information relating to the exercise of investors’ rights arising from their investment in the AIF in the Member State where the AIF is marketed;
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| (d) make the information and documents required pursuant to Chapter IX available to investors under the conditions laid down in Article 94, for the purposes of inspection and obtaining copies thereof;
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(d) make the information and documents required pursuant to Articles 22 and 23 available to investors for the purposes of inspection and obtaining copies thereof; |
| (e) provide investors with information relevant to the tasks that the facilities perform in a durable medium; and | (e) provide investors with information relevant to the tasks that the facilities perform in a durable medium as defined in point (m) of Article 2(1) of Directive 2009/65/EC; and
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| (f) act as a contact point for communicating with the competent authorities.
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(f) act as a contact point for communicating with the competent authorities.
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Given this context, it is more than reasonable to conclude that the arrangements for the facilities in relation to the retail marketing of UCITS funds can also be used for the retail marketing of the ELTIF.
With regard to Italy, the CBDF Directive didn’t have material effects on the way the UCITS funds were marketed, whereas they continue to appoint retail distributors (aka placement agents) that market the fund and convey the orders and the payments to the fund via a local paying agent (“LPA”), appointed by the fund as well, that also acts as nominee for the registration of the shares/units and as tax substitute for the underlying investors. Additionally, the UCITS funds continue to be subscribed through Italy-specific application form consisting of a first part with the details of the investor and of the order and an annex with specific information on Italy concerning the sub-funds/classes available, the subscription/redemption/conversion procedures, the LPA fees, the taxation at investor’s level and the dissemination of documents and information. This means that the system based on the placement agents/LPA/local application form continues to be a valid arrangement for marketing UCITS funds in Italy even after the transposition of the CBDF Directive. Of course, these arrangements are just one of the systems that can be used under the CBDF, but they continue to reflect the prevailing market practice although the CBDF allows other arrangements and in particular doesn’t require any longer that the shareholders’ services are located in the country of marketing, in our case, Italy.
On the basis of the above considerations, it is possible to retail market ELTIF funds in Italy by using the same arrangements used for the UCITS, with some limited differences based on the characteristics of the ELTIF, such as the assessment of the ability of the investor to understand the product with, e.g., the check of his/her qualification of “informed investor” under the EMT categorisation, existence of an advisory agreement between the investor and the distributor, verification of other restrictions to subscriptions, if any, in the prospectus of the ELTIF.
Additionally, the practice shows that the Italian application forms used for the subscriptions of the ELTIF have the same layout as the one of the UCITS, with the first part – to be filled in with the details of the investor and of the order – often prepared according to the template of the LPA and the annex, to be combined with the first part, prepared by the fund.
Therefore, we expect that the ELTIF may have some success in Italy both because they are a complement to the UCITS funds and because they have marketing procedures common to the same UCITS funds. In addition, I believe the sustainable investments do not have any longer the momentum they had in the last couple of years, and, perhaps, the investors may try other investment solutions, for example private markets.
Francesco P Crocenzi
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