Europe: BaFin Clarifies the German Approach to the ELTIF 2.0 Regime

By: Hilger von Livonius and Philipp Riedl

As anticipated in our earlier blog on ELTIF 2.0, Regulation (EU) 2023/606 amending the Regulation on European long-term investment funds (ELTIF Regulation) has been in force since 10 January 2024. There is a lot of hope in the German market that the revised ELTIF regime will finally help this product to achieve a breakthrough.

On 1 February 2024, the German Federal Financial Supervisory Authority (BaFin) published an FAQ to outline the German regulatory approach to the revised ELTIF regime. It clarifies certain issues on the relationship between the ELTIF Regulation and the German Capital Investment Code (KAGB). Amongst other things, BaFin points out that only an authorised EU AIFM can manage an ELTIF while a sub-threshold AIFM registration is not sufficient for these purposes. Internally-managed ELTIFs will need to apply for the AIFM license and the admission as an ELTIF at the same time.

Furthermore, BaFin clarifies that ELTIFs can be set up both in the contractual form (i.e. as a trust structure) and in the corporate form (such as a German limited partnership), thereby opening up the entire toolbox provided by German investment funds legislation. Open-ended funds are subject to slightly different rules than closed-ended ones. BaFin has clarified that an ELTIF will be qualified as open-ended if investors can redeem their units before the start of the liquidation phase or wind-down. If the investment terms foresee a liquidity window mechanism under Art. 19 (2a) of the ELTIF Regulation (aiming to match transfer requests by exiting investors with those by potential investors), this does not per se result in the ELTIF being qualified as open-ended. It should also be noted that BaFin (in accordance with its general administrative practice for closed-ended AIFs) only accepts a maximum term of 30 years for closed-ended ELTIFs.

Other blogs on this topic, focusing on the Irish market, are available here, here and here.