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The EU-wide capital markets “union” represents a vital part of the continental integration efforts and aims to create a single market for capital. Among other issues, it is about activating available capital and money in the form of investments and savings to “flouting freely” across the EU member states in order to benefit consumers, investors and companies. Revised investment policy is expected to help the capital market integration to prosper.
Background
At the end of October 2024, the European Commission completed the EU-wide long-term investment funds which enable investors to invest in real assets, as well as in corporate and public long-term development projects. Besides, the EU funds will stimulate long-term investments in the green and digital transition and the same time facilitate sustainable growth in the member states.
The finalised reform and accompanying legislation of the European Long-Term Investment Funds (ELTIFs) were included in the Commission Delegated Regulation specifying regulatory technical standards, RTS. The ELTIFs are the EU-member states’ funds that enable investors to invest in real assets, in companies and in long-term projects.
The revision brings improvements for EU investors and strengthens EU capital markets. It was part of the revamped 2021 capital markets union action plan that aimed at unlocking long-term investments in the green and digital transition and driving sustainable growth across the EU.
More on the 2021 plan with four legislative proposals in: https://finance.ec.europa.eu/publications/capital-markets-union-commission-adopts-package-ensure-better-data-access-and-revamped-investment_en
Actually, the EU capital markets union, CMU is a plan to create a single market for capital; it aims to activate “available capital and money” in the form of investments and savings freely “flowing across the EU” to ultimately benefit consumers, investors and companies around EU-27. Ideally, the main CMU’s facets are to: = provide businesses with a greater choice of funding at lower costs and provide SMEs in particular with the financing they need; = support the post-pandemic economic recovery and create jobs; = offer new opportunities for savers and investors; = create a more inclusive and resilient economy in the states; = help the member states deliver on the EU-wide new “twin transition, i.e. in the green deal and digital agenda; and = reinforce the EU’s global competitiveness and strategic autonomy by making the financial system more efficient and resilient.
On ELTIF (2015) in: https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/european-long-term-investment-funds-regulation_en
The CMU was initiated in 2015; at that time, the Commission set out a list of over 30 actions to establish the building blocks of an integrated capital market in the EU by 2019. However, the EU-wide capital markets remain fragmented; therefore, the Commission adopted in September 2020 a new CMU action plan with 16 legislative and administrative measures to deliver on three main objectives: a) supporting green, inclusive and resilient economic recovery; b) making the EU a safer place to save and invest long-term; and c) integrating the member states’ capital markets into a genuine EU-wide single market.
Reference to: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/capital-markets-union/what-capital-markets-union_en
Revised investment policy
The revised regime (which is commonly known as the ELTIF 2.0 and applicable since January 2024), makes ELTIFs more accessible and attractive for investors. It removes existing hurdles and enables ELTIFs to be marketed to investors across the EU-27 member states.
The ELTIF 2.0 wished also to “democratize” private investing by empowering retail investors and opening the door to assets classes, projects and investment strategies previously reserved primarily for highly sophisticated institutional investors.
Moreover, the new regime enhances investor protection safeguards by introducing a suitability assessment aligned with general rules under the Markets in Financial Instruments Directive (MiFID-II), a depositary for retail ELTIFs as well as comprehensive disclosure requirements and investor alerts.
More in the Directive 2024/790 of February 2024 (MiFID-II) amending Directive 2014/65/EU on markets in financial instruments (effective from September 2025) in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32024L0790
Also the following related web-links are useful: – List of EU regulated markets; – Glossary: Useful terms linked to markets in financial instruments; – European Securities and Markets Authority (ESMA) on MiFID II; – Expert Group of the European Securities Committee (EGESC); – the European Securities Committee.
Main ELTIF 2.0 features
The following are the main aspects of the new investment’s reform:
= Expanded investment universe: The reform significantly broadens the range of eligible assets for ELTIFs, encompassing infrastructure, investments in SMEs, listed and unlisted companies, European innovative enterprises and long-term projects. The flexibility of the ELTIF 2.0 allows fund managers to tailor their investment strategies, liquidity and exposures to a wider range of investment opportunities.
= Enhanced liquidity options: Recognizing the need for greater liquidity, ELTIF 2.0 allows for the creation of semi-liquid ELTIFs that can, under certain conditions, offer redemptions in line with the fund’s liquidity situation. In addition, it introduces a mechanism to promote the secondary trading between existing and potential investors. This provides investors with additional possibilities for accessing liquidity.
= Simplified marketing and distribution: The EU-wide “passportability” of ELTIF 2.0 streamlines the marketing for retail investors, ensuring they have access to clear and concise information, including a Key information document KID, to make informed investment decisions. This also significantly facilitates marketing processes for asset managers and distributors.
Citations from: https://finance.ec.europa.eu/news/capital-markets-union-2024-10-30_en
Commission’s bottom line
The finalisation of the ELTIF 2.0 reform is expected to stimulate long-term investments in Europe. It marks a turning point for many national investment funds, which are mostly marketed domestically, and therefore are unable to fully reap the benefits of the Single Market.
By addressing the shortcomings of the original ELTIF framework, ELTIF 2.0 seeks to mobilise significant private capital, strengthen the EU’s capital markets and support projects crucial to the EU’s long-term competitiveness.
In this way, it will act as a powerful catalyst for advancing the savings and investments union and capital market union objectives.
General information on CMU in: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/capital-markets-union/what-capital-markets-union_en
Our comment. There is a striking difference in the ways the investment system works on both sides of the Atlantic. For example, in the US financial services consist of two major national financial securities’ entities: the New York Stock Exchange, NYSE and Nasdaq, which are the largest stock exchanges in the world by market capitalization. Presently, there are three leading stock indexes in the US: the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite. Besides, the whole US economy is guided by stock market approach: currently, there are 13 stock market exchanges that service the socio-economic development. E.g. the US stock market sector is arranged around “groups of stocks” in numerous industries: there are eleven different stock market sectors, according to the most commonly used classification system – the Global Industry Classification Standard. The stocks’ sectors make it easier to compare which stocks are making the most money, i.e. energy and utilities, materials and healthcare, industrial sectors and real estate, etc. A vital component of the stock market system is the active use of private capital in the form of investments into different economy sectors: in this way the public and private capital can fruitfully cooperate.
More in: https://www.integrin.dk/2024/10/02/european-growth-strategy-facing-eu-us-competition-challenges/
In the EU the “investment mechanism” involves strong governance instruments and legislation: the recommendations made by two recent reports (by Draghi and Letta) have compared the US and the EU-wide investment policy. The “issue of competitiveness” that is involved in investment is more than just the level of reforms and legislation; the whole EU-wide political economy’s governance shall be modernized. Presently, there were adopted about 50 various legislative and administrative measures (just during last decade) to deliver on such main objectives as supporting green, inclusive and resilient economic recovery. And some new “guidances” are invented: for example, in August 2023, the Commission introduced numerous indicators to “update the list of indicators to monitor progress towards the CMU objectives”. The newly adopted in February 2024 directive 2024/790-MiFID-II on markets in financial instruments is a clear example of a “legal approach” to the efficient investment policies: i.e. the EU member states shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 29 September 2025.
More in: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:L_202400790