Long-term investment

Insurers welcome ELTIF review, but warn asset class remains unattractive for long-term institutional investors


Insurance Europe has responded to a consultation by the EC on its proposal to review the European Long-Term Investment Funds (ELTIF) Regulation.

As insurers — which are Europe’s largest institutional investors — require access to a wide range of assets that provide attractive returns and portfolio diversification, improvements to the ELTIF framework to make it more appealing to institutional investors are welcome.

Nonetheless, despite the EC’s suggested changes, the attractiveness of ELTIFs for institutional investors is likely to remain limited. In many cases the ELTIF’s design is less likely to meet individual investment needs than traditional alternative investment funds (AIFs), which can be implemented in a more flexible and tailored manner. In particular, the ELTIF maintains its closed-end nature which limits its flexibility and attractiveness, hence institutional investors, including insurers, will tend to opt for traditional AIFs in the future.

Finally, it is disappointing that the EC’s proposal does not include any changes to the equity capital charge under Solvency II to reflect ELTIFs’ long-term nature and to allow insurers to classify them as “long-term equity” and benefit from a 22% capital charge. Insurance Europe notes, however, that this would not preclude companies from using the look-through approach to the underlying investments.