ESMA warns ELTIF growth may pose future risks.
Europe's markets watchdog, the European Securities and Markets Authority (ESMA), has expressed concerns over the European Commission's efforts to boost European long-term investment funds (ELTIFS).
Evert van Walsum, head of investor protection at ESMA, warned that a sudden increase in ELTIFS, driven by recent regulatory changes, could lead to future issues. He highlighted a "baked-in" liquidity mismatch in the new rules, which offer asset managers more flexibility in managing fund liquidity.
ESMA concerns also clash with global efforts to address systemic risks in the funds industry, which focus on more stringent redemption rules. ESMA had previously proposed stricter liquidity requirements for ELTIFS; these suggestions were rejected by the commission following industry lobbying. Despite these concerns, Hélène Bussières, head of the commission's asset management unit, expressed optimism, noting that the demand for ELTIFS is strong and they play a key role in the EU's capital markets agenda 💼
Asset managers may wish to consider assessing and adjusting their liquidity management strategies to mitigate potential risks associated with the rapid growth of ELTIFS, ensuring they remain resilient in volatile market conditions. What are your views?
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