The European Alternative Investment Fund Managers Directive (AIFMD) was introduced in 2011 with the key objectives of harmonising the regulatory framework for alternative investment fund managers (AIFMs) across the EU and improving investor protections in light of the global financial crisis. Development of the next iteration of AIFMD (AIFMD II) has been in the works for several years and the revised directive will enter into force from 16 April 2026. AIFMD II does not represent a wholesale rewriting of the AIFMD framework, but the reform rather focuses on specific aspects that will have practical implications for the structuring, financing, management and disclosure obligations of alternative investment funds (AIFs) as well as the policies, procedures and reporting obligations of AIFMs.
AIFMD II does not represent a wholesale rewriting of the AIFMD framework, but rather focuses on specific aspects that will have practical implications.
Loan originating AIFs
Reflecting the growing prominence of private debt and its distinctive characteristics as an asset class, one of the key elements of AIFMD II is a focus on loan origination activities carried out by AIFs. New definitions of "loan-origination" and "loan-originating AIFs" are introduced, which apply to AIFs that either grant loans directly or indirectly as their main activity, or hold at least 50% of their net asset value in originated loans. The determination as to whether an AIF meets the new definition of "loan-originating AIF", or originates loans but does not fall within such definition, is important and is a relevant assessment to undertake for both existing and new AIFs. AIFMD II applies certain requirements to an AIF that engages in loan origination, irrespective of whether it meets the definition of a loan-originating AIF, while additional structural requirements apply only to AIFs that qualify as loan-originating AIFs.
The new requirements include: (a) leverage limits, which vary depending on whether a loan originating AIF is open- or closed-ended; (b) risk retention requirements; (c) concentration limits when the AIF grants loans to certain types of borrower; (d) prohibitions on making loans to certain related parties and consumers; and (e) prohibitions on AIFs engaging in loan origination solely for the purpose of transferring loans to third parties.
At first glance, the new definition and requirements sound fairly straightforward; however, as is so often the case, the devil is in the detail and many complexities arise when applying the requirements in practice.
Liquidity management tools
As open-ended AIFs have become more common, there is an inherent tension between the illiquid nature of most private assets and the liquidity expectations of investors. AIFMD II seeks to address this and strengthen the resilience of open-ended AIFs by introducing detailed requirements regarding the use of liquidity management tools ("LMTs").
Under AIFMD II, the manager of an open-ended AIF must select at least two suitable LMTs (or one for money market funds) from a prescribed list of options. AIFMs of open-ended AIFs must also develop detailed policies and procedures governing the use of the chosen LMTs. The LMTs that are appropriate for a particular open-ended AIF, and the conditions under which they may be activated, will depend on a range of factors, requiring a bespoke assessment of the features of the AIF, its investment strategy, redemption policy and the type of assets that it invests in.
These new requirements will apply to both new and existing open-ended AIFs, and will impact product design for funds in the pipeline as well as the features of existing funds.
Investor disclosures and reporting obligations to supervisory authorities
AIFMD II also seeks to strengthen investor protections through enhanced disclosure and reporting requirements. The new requirements place greater emphasis on transparency around fees and expenses (including indirect costs) and delegation of an AIFM's key functions, as well as enhancing risk and liquidity disclosures. The focus on cost transparency in particular aligns with wider EU initiatives looking at "value for money" and is intended to help investors better assess and compare pricing across AIFs.
A tailored approach
Many of the new requirements under AIFMD II will come into force from 16 April 2026, with certain grandfathering provisions available, depending on the features of an AIF and when it was established. AIFMD II will be relevant in the design and documentation of new funds, but the extent to which AIFMD II impacts existing funds, and from when, will depend on the particular circumstances and features of each AIF. AIFMs should review existing disclosures and policies to ensure they meet the new requirements introduced by AIFMD II and carefully assesses if existing AIFs are in scope of new provisions and the availability of any grandfathering provisions, followed by the development of a tailored implementation plan.