In Search of Long-Termism: From Restrictive to Enabling Regulation of European LongTerm Investment Funds (ELTIFs)

Since the revision of the European Long-term Investment Funds (ELTIFs) Regulation in 2023, ELTIFs have been on the rise. Over the past two years the number of funds has doubled, and fund volumes have increased tenfold. ELTIFs complement existing EU rules on retail investment funds for transferable securities and liquid financial instruments, representing the EU financial regulation’s response to both the closed-end fund puzzle and the closed-end fund scandals of the past. This paper analyses the success of ELTIF II. Factors contributing to the success include a flexible interpretation of ‘long-term investments’, which emphasizes economic use cases that lie between pure financial investment and retail consumption. Other key factors are the deliberate avoidance of politicized language in the regulatory text and an enabling regulatory approach that places less emphasis on product regulation. This reflects a shift away from the restrictive frameworks shaped by past scandals and challenges related to closed-end funds investing in illiquid assets. The ELTIF experience illustrates that, owing to its openness to innovation, demonstrated robustness, and stronger contribution to the EU single market, intermediary regulation, such as the regulation of fund managers and depositaries, should be regarded as the preferred approach in future EU financial regulation. Part II places ELTIFs within the context of EU investment law, outlines their function between open-ended and closed-ended funds, and argues that the most crucial aspect of the ELTIF Regulation is what constitutes a long-term investment. In Part 3, I summarize the binding legal text and existing regulatory guidance on what constitutes a long-term investment under the ELTIF Regulation, finding significant uncertainty regarding the definitional features of the ELTIF qualifying investment. Part IV goes on to define a long-term investment, developing a two-pronged test where each feature alone suffices to define long-termism under the ELTIF Regulation. Part V concludes