FESE Response To The ELTIF Proposal

FESE supports the objectives of the newly proposed European Long-term Investment Funds framework, namely, to boost the funds invested in long-term infrastructure projects and other long-term assets that will lead to a sustainable development of the European economy. We also expressly agree that long-term assets are not limited to infrastructure investments and include more generally all investments with a long-term positive impact on the sustainable development of the economy.

However, the draft Regulation will not achieve its purpose because its scope of eligible assets excludes any instrument listed on regulated venues. This means that thousands of companies issuing well-regulated, transparent instruments will be excluded from the benefit of a larger investor pool in their assets created by the ELTIF framework.

This is unfortunate since listing on a public market is an enabler of investment with a long-term perspective and of sustainable economic growth. Whether the issuer issues equity or bonds, the listing of these instruments brings transparency and certainty, and makes a product more attractive to investors – all of which facilitates growth opportunity for companies and benefits their investors. Moreover, public equity markets operate on the basis of “risk capital” – which means that the company gains the independence to undertake investments that it deems necessary with a long-term horizon, in transparency to investors, but without the obligation to make fixed payments.

Furthermore, since one of the objectives of the proposal is to inject capital into illiquid assets in the EU, listed as well as unlisted assets would benefit from an increased investor pool such as the one created by ELTIFs. While institutional investors do invest, and trade, in the listed instruments below this top tier of turnover, and while regulatory frameworks such as UCITS do to some extent enable pan-European investment, we strongly believe that it would be in Europe’s best interest to also include listed instruments in the new pan-European investor pools being created by ELTIFs. In other words, investors should be able to use both the UCITS and the ELTIF frameworks to be able to invest in listed companies.

As a result of these considerations, we believe that:

• any threshold differentiating between listed and unlisted instruments should be removed. There is no reason to limit investing in listed instruments to 30 percent of an ELTIF portfolio.
• listed SMEs should be expressly in the scope of eligible investments. If a threshold of size were to be used to define an SME, we suggest a range between 500 million and 1 billion EUR, based on the difficulties reported by SMEs below these sizes when accessing capital markets.