Wigge & Partners’ Funds and Investments News April 2023

We did it, so you don’t have to. Here is a compilation of the latest regulatory changes and market research in the funds and investment sector. Our intention is to provide a summary relevant to both managers, investors and institutions navigating the world of funds.

Fund Managers

ELTIF 2.0 published in the Official Journal

The amended Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (“ELTIF 2.0”) was just published in the Official Journal of the European Union (“OJ”). The ELTIF regulation was introduced in 2015 as a means to create funds dedicated to long-term investments that can be distributed on a cross-border basis to both professional and retail investors. The changes shall apply from 10th January 2024. A number of changes have been made in order to attract more asset managers and investors, including:

Broader scope of permissible investments and eligible assets, including a higher threshold for market capitalization, a broader definition of “real assets”, and the possibility to invest in standardized securitisations, non-EU qualifying portfolio undertakings, green bonds and FindTechs.Facilitation of retail investor access through the removal of the minimum net worth requirement as well as the previous €10,000 entry ticket, and through alignment of the ELTIF suitability test with MiFID II.More flexible investment and diversification rules, enabling investments in fund-of-funds & master-feeder structures, the utilization of increased leverage, and an increase in the general diversification requirements.Possibility for ELTIFs to allow redemption before the end of the life of the ELTIF due to, e.g., the abolishment of the mandatory lock-up during the ramp-up period and shortening of the lock-up period, as well as more manageable liquidity management requirements.

Find ELTIF 2.0 on EUR-Lex (in English).

Negotiations regarding the new AIFMD framework

A review of the AIFMD framework was presented on 25th November 2021, introducing major changes to the framework, including rules concerning delegation, reporting, depositaries, loan-origination and liquidity. The Council and the European Parliament have recently agreed on their respective amendments to the review and negotiations are taking place in Q1/Q2 of 2023. In general, the amendments have made the proposal more flexible in relation to the industry and highlight the importance of delegation. New rules will probably be applicable as of 2025.

Find the latest amended proposal from the European Parliament here (in English).


Disclosures for fossil gas and nuclear energy investments published in the Official Journal

On 17th February, the regulatory technical standards (“RTS”) regarding the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under Regulation (EU) No 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”) where published in the OJ. They entered into force three days following the publication. The provisions concerning the RTS add specific disclosures to inform investors’ investment decisions in EU Taxonomy-aligned nuclear and gas economic activities.

The new disclosures correct and amend the SFDR RTS in the Delegated Regulation (EU) 2022/1288 by:

Adding a yes/no question in the financial product templates of the SFDR to identify whether the financial product intends to invest in fossil gas and nuclear energy activities; where an affirmative answer requires a graphical representation of the proportion of investments in such activities; andimplementing minor technical revisions to the Delegated Regulation to correct inconsistencies.

Find the disclosures on EUR-Lex (in English).

The Commission presents the GDIP

The European Commission (“Commission”) recently presented the Green Deal Industrial Plan (“GDIP”). The GDIP aims to make the Europe’s net-zero industry more competitive and support a fast transition to climate neutrality, by facilitating new public funding for financing the transition while at the same time supporting EU’s businesses’ access to finance and competitiveness.

The GDIP is built upon four pillars:

A predictable and simplified regulatory environmentFaster access to fundingEnhancing skillsOpen trade for resilient supply chain

As part of the first pillar of the plan, the proposal for a Net-Zero Industry Act was published on 16th March.

Find the GDIP here and the proposal for the Net-Zero Industry Act here (both in English).

ESMA, EIOPA and EBA issues opinions on draft ESRS

On 26th January the European Banking Authority (“EBA”), the European Insurance and Occupational Pensions Authority (“EIOPA”) and the European Securities and Markets Authority (“ESMA”), collectively known as the three European Supervisory Authorities (“ESAs”), issued their respective opinions on the draft European Sustainability Reporting Standards (“ESRS”). As a whole, the ESAs gave positive feedback on the draft ESRS and underlined a couple of common requests, including the need for further guidance on materiality assessment, additional clarity regarding of the boundaries of the value chain reporting to be reflective of the specific nature of financial institutions, and to provide automatic compliance with International Financial Reporting Standards (“IFRS”).

Find EBA’s opinion here, EIOPA’s here and ESMA’s here (all three in English).

EFAMA questions the threshold approach in ESMA’s proposed guidelines on the use of ESG terms in fund names

European Fund and Asset Management Association (“EFAMA”) recently published its response to ESMA’s consultation regarding the proposed guidelines on the use of ESG or sutainability-related terms in funds’ names. In its response EFAMA members question the threshold approach since it may not address the underlying greenwashing issues due to the present lack of clarity on many important sustainable finance concepts. EFAMA suggest that the proposed guidelines are postponed until the issue of the lack of clarity regarding the definition of a “sustainable investment” is resolved as well as the interoperability issues between different regulations, such as the SFDR, and the guidelines.

Find EFAMA’s full position paper here (in English).

ESMA Work Programme 2023: focus on sustainability, technological change and protection of retail investors

ESMA, the EU’s financial markets regulator and supervisor, has published its 2023 Annual Work Programme (AWP). It sets out ESMA’s priority work areas for the next year to deliver on its mission to enhance investor protection and promote stable and orderly financial markets. Key deliveriable for 2023 includes enabling sustainable finance and develop remaining technical standards under the SFDR and work to better understand and fight against greenwashing.

ESMA’s Work Programme for 2023 can be found here (in English).

Finansinspektionen’s strategy to prevent greenwashing

The Swedish Supervisory Authority (“Finansinspektionen” or “FI”) has published its strategy to prevent greenwashing, which aims to safeguard the trust in sustainable investments and sustainable finance and includes identification of prioritized areas. FI will prioritise the following areas in their work to prevent greenwashing:

Implement new rules and maintain a dialogue and communication with the industryImprove access to sustainability-related informationImprove transparency about ESG ratings and ESG data suppliersImprove disclosures regarding sustainable financial productsFollow up on information provided in conjunction with financial adviceIntegrate sustainability factors into the authorisation processBuild capacity in the area of sustainable financeCooperate internationally in task groups on this topic.

FI will work to reduce the risk of greenwashing both through preventive measures and supervision activities.

Find Finansinspektionen’s strategy to prevent greenwashing here (in English).

Market and market research

Five EU member states and EIB have signed a EUR 3.75 bn fund mandate for late-stage high-tech companies

On 13th February, Germany, France, Spain, Italy and Belgium, the EIB and the EIF (the latter two forming the “European Investment Bank Group”) approved the creation of a EUR 3.75 billions fund that will finance European high-tech companies.

The European Tech Champions Initiative (“ETCI”) mandate is a Fund of Funds that will make significant investments into large-scale Venture Capital funds, which will in turn provide financing to European tech companies in their late-stage growth phase. It will also help develop an asset class for European institutional investors to diversify their portfolios. The size of the fund is anticipated to expand with future commitments.

Find the press release on EIB’s website (in English).

ESMA publishes report on trends, risks and vulnerabilities

ESMA has recently published a report on trends, risks and vulnerabilities within the EU financial markets where they point out high inflation, the slowdown of economic activity, the geopolitical environment, the global tightening of financial conditions and the materialisation of peripheral risks linked to liquidity and leverage as the key drivers of risk in EU financial markets in the current state of affairs, exacerbated by growing concerns over business practices in the crypto sector.

At the same time, financial markets have remained notably stable in the second half of 2022 and economic sentiment has become more positive in early 2023. Private markets have continued to grow to reach EUR 8.6tn globally, including an exposure of EUR 1.2tn for EU AIFs.

In the future, the confluence of risk sources nevertheless proceeds to result in a highly fragile market environment, and investors should expect further market corrections.

Find ESMA’s full report here (in English).

2022 was a year of large net outflows from AIFs and UCITS tempered by robust demand for ETFs and sustainable funds

EFAMA has just released its latest two monthly Investment Fund Industry Fact Sheet, containing data on net sales of AIFs and UCITS for December 2022 and January 2023 at European level and by country of fund domiciliation. The net sales of AIFs and UCITS registered net inflows of EUR 29 billion in January 2023, up from EUR 23 billion in December 2022.

A first analysis and overview of the data on the whole of 2022 is also included in the fact sheet for December 2022. EFAMA summarizes 2022 as a difficult year for AIFs and UCITS with large net outflows from AIFs and UCITS not seen since the financial crisis of 2008. At the same time, it has been a good year for SFDR Article 9 funds and exchange-traded funds (“ETFs”), which have sustained a strong demand, dispite challenging market conditions.

Find ESMA’s press releases regarding December including the entire past year here and January 2023 here (both in English).

Diversity in the asset management industry: on the right track, but at the wrong pace

Willis Towers Watson, a private insurance services company (“WTW”), has recently published a report overviewing diversity in the asset management industry. The report’s main finding is that while more and more asset managers and asset owners are seeing the advantages of fostering diversity within their teams, the pace may be too slow.

WTW’s analysis also shows that diversity improves investment performance with investment teams in the top quartile of gender diversity outperforming the bottom quartile by 45bps per annum in terms of net excess return.

Find WTW’s report on their website (in English).


The Wolfsberg Group publishes updated financial crime compliance questionnaire

The Wolfsberg Group, a non-governemental association of thirteen global banks which aims to develop frameworks and guidance for the management of financial crime risks, (“Wolfsberg”), has published updated Financial Crime Compliance Questionnaire (FCCQ), together with updated supporting Guidance, Glossary and FAQs documents. The FCCQ updates include a new section on Fraud and additional questions related to Whistleblower Policy, Virtual Bank License, the approval of Sanctions Policy, and other changes designed to improve the logic, usability and flow of the questionnaire.

Find the documents on Wolfsberg’s website (in English).

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