What do AIFMs need to do?

Loan-origination activities and loan-originating AIFs

AIFMD 2 introduces a new loan-origination regime, with general rules applicable to all AIFs that originate loans, and more stringent requirements applicable to AIFs that qualify as loan-originating AIFs.

Key action points for AIFMs include:

• Assessing whether the AIFs they manage originate loans; and whether they qualify as loan-originating AIFs (i.e., an AIF whose investment strategy is mainly to originate loans; or whose originated loans have a notional value that represents at least 50% of its net asset value). The outcome of the assessment should be documented and appropriate records retained.
• For a loan-originating AIF:
  • Ensuring that the AIF is structured as a closed-ended fund unless it can demonstrate that the AIF’s liquidity risk management arrangements are compatible with the AIF’s investment strategy and redemption policy. The Level 2 Delegated Regulation (the OE RTS), which has been finalised but will not be formally adopted until October 2027 (thereby creating a degree of unhelpful uncertainty), includes further guidance on how the AIFM should establish an appropriate redemption policy, undertake frequent stress tests, and conduct ongoing monitoring. In addition, the OE RTS has clarified that:
    • the AIFM must have arrangements in place to ensure that the open-ended loan originating AIF has sufficient liquidity to honour redemption requests, as opposed to holding a specific amount of liquid assets (as originally proposed); and
    • the AIFM must conduct liquidity stress tests at least annually rather than every quarter (as originally proposed). Note: AIFMs should assess whether stress tests should be undertaken more frequently than on an annual basis.
  • Ensuring the AIF complies with the following leverage limits, calculated using the commitment method (i.e., taking into consideration netting and hedging arrangements, as opposed to the gross method): 175% for open-ended structures, and 300% for closed-ended structures.

• For AIFs that originate loans:
  • Ensuring that the AIF retains (at least) 5% of the notional value of the loans that it originates (subject to certain derogations, for instance in the case of an AIF’s liquidation or for the purposes of compliance with sanctions);
  • Ensuring that the AIF is not established for the sole purpose of originating loans and selling them to third parties under a so-called “originate-to-distribute strategy”;
  • Ensuring that lending to certain types of borrowers does not exceed 20% of the AIF’s capital (i.e., loans to other AIFs, UCITS or financial services firms such as banks, investment firms, and insurance companies). This limitation will apply no later than two years following the first subscription for units in the AIF. However, the limitation can be disapplied if the AIF is selling assets to meet redemption requests, or during the liquidation of the AIF. It can also be temporarily suspended for up to one year if the capital of the AIF is increased or decreased;
  • Ensuring that the AIF does not lend to its AIFM, depositary or its delegates, or their respective employees and personnel (with the exception of affiliates who exclusively finance borrowers);
  • Ensuring that the AIF does not lend or service loans to a retail consumer where this is prohibited in a specific Member State; and
  • Implementing policies and procedures for granting loans (e.g., procedures for assessing the credit risk of the borrower and ongoing monitoring of the performance of the credit portfolio). These should be appropriately documented and records retained.

Fund liquidity management rules

AIFMD 2 (supplemented by Level 2 Delegated Regulation and Guidelines) introduces certain changes to the liquidity management requirements, including obliging AIFMs managing open-ended AIFs to:

• Select at least two liquidity management tools (LMTs) for each AIF that they manage, which should take account of the AIF’s investment strategy, liquidity profile, and redemption policy. These will include suspension of subscriptions/repurchases/redemptions, redemption gates, extension of notice periods, redemption fees, swing pricing, dual pricing, anti-dilution levies, redemptions in kind, and side pockets. The suspension of subscriptions/repurchases/redemptions and the use of side pockets are restricted to exceptional circumstances. In addition, the Level 2 Delegated Regulation clarifies that restricting subscriptions while continuing to allow repurchases and redemptions by existing investors (so-called “soft closure”) will not qualify as an LMT for Annex V purposes as it “does not serve the purpose of managing liquidity risks or addressing redemption pressure under stressed market conditions;
• Implement a policy governing the oversight and appropriate use of LMTs, which should form part of a broader fund liquidity risk management policy, and should capture the conditions for activating and deactivating LMTs; and
• Notify the home state regulator when activating or deactivating the LMTs within a reasonable timeframe.

Action points for AIFMs include:

• Identifying existing LMT arrangements and making any necessary amendments to reflect the new requirements;
• Reviewing and updating governance, policies, and procedures to oversee the use and appropriateness of the LMTs;
• Establishing a LMT plan, which sets out the steps required to be taken prior to and immediately after the activation and deactivation of an LMT;
• Updating investor disclosures to cover the selection and operation of LMTs; and
• Notifying their home state regulator of changes in the LMTs (both activations and deactivations).

Delegation

While AIFMD 2 does not impose any new substantive obligations on AIFMs in respect to delegation, it introduces enhanced reporting requirements and provides clarity around some of the delegation substance requirements.

It also explicitly clarifies that the AIFM is directly responsible for ensuring that the delegate complies with the requirements in the AIFMD irrespective of the regulatory status or location of any delegate, and extends the scope of the delegation rules to all AIFM functions and permitted ancillary activities (although there is a carve-out for certain marketing arrangements involving regulated distributors).

Key action points for AIFMs include:

• Ensuring that the business of the AIFM is conducted by at least two natural persons who are (a) employed on a full-time basis by the AIFM, or (b) executive members or members of the governing body of the AIFM, committed full-time to conducting the business of the AIFM; and are domiciled in the EU. This is consistent with general market practice in key onshore fund jurisdictions such as Luxembourg and Ireland;
• Updating existing policies and procedures on delegation arrangements to ensure they capture all delegated AIFM functions;
• Undertaking appropriate due diligence on delegates, ensuring that they are appropriately qualified, and subject to ongoing monitoring and oversight. AIFMs should ensure that they maintain an appropriate audit trail to evidence the ongoing appropriateness of delegation arrangements; and
• Reporting details of their delegation of portfolio management or risk management to their home state regulator (including the name, domicile and the amount and percentage of each AIF’s assets that are subject to delegation arrangements).

Regulatory reporting and investor disclosure

AIFMD 2 extends the scope of information that AIFMs are required to report to their home state regulator to include (a) data on the current risk profile of the AIF (including market, liquidity, counterparty and operational risk), (b) the total amount of leverage employed by the AIF, and (c) details of the delegation arrangements concerning portfolio management or risk management functions). The reports should be made using the applicable templates.

AIFMD 2 also expands the information that EU and non-EU AIFMs will be required to disclose to investors prior to investing in the fund (the so-called Article 23 disclosures) to include all fees, charges and expenses borne by the AIFM that will be allocated to the AIF, details on LMTs, and information on loans originated.

In addition, the AIF annual report will need to include all fees borne by investors and a list of parent companies, subsidiaries or special purpose vehicles used in connection with the AIF’s investments.

Key action points for AIFMs include:

• Identifying all new relevant data and information items;
• Updating procedures and processes to ensure compliance with reporting requirements; and
• Reviewing and updating pre-contractual investor disclosures and AIF periodic disclosures to capture the new disclosure items.

Depositaries

AIFMD 2 permits AIFMs to appoint depositaries outside their AIF’s home country provided that: (a) the AIFM can demonstrate a lack of depositary services in the AIF’s home state; (b) the aggregate amount of assets held by the depositaries in the AIF’s home state does not exceed EUR 50 billion; and (c) the AIF’s home state regulator provides consent on a case-by-case basis. While this additional flexibility is helpful, it would be unlikely to apply to AIFs established in jurisdictions such as Luxembourg and Ireland, which are well-serviced depositary markets.

Although proposals relating to a depositary “passport” were discussed during the legislative process, they were not ultimately adopted. However, this concept re-emerges in the latest market integration proposals published by the European Commission, so AIFMs should stay abreast of developments in this space.

AIFMD 2 updates the conditions for appointing depositories in a third country by a non-EU AIF by confirming that the third country must not be located in a high-risk country pursuant to the EU Anti-Money Laundering Directive and must not be mentioned in Annex I of the list of non-cooperative jurisdictions for tax purposes (an Excluded Jurisdiction). In the event that a depository is subsequently identified as being located in an Excluded Jurisdiction, a new depositary will have to be appointed within an appropriate timeframe, which must not be longer than two years.

Key action points for AIFMs include:

• Reviewing any existing third-country depositories to ensure that they are not located in an Excluded Jurisdiction, implementing a procedure to monitor this, and making any necessary changes to depositary arrangements if the depositary is in an Excluded Jurisdiction; and
• If appointing a depository outside the AIF’s home state, ensuring that this can be justified based on the relevant AIFMD 2 conditions and obtaining consent from the regulator.

Conflicts of interest and expansion of AIFM activities

AIFMD 2 requires AIFMs to implement more robust procedures around the management of conflicts of interest when they are appointed to manage an AIF by a third party. This will include submitting detailed explanations to their home state regulator on: (a) how such conflicts are managed in accordance with the AIFMD, and (b) the “reasonable steps” taken to prevent conflicts, and where such conflicts cannot be prevented, the steps taken to identify, monitor, manage, and disclose them.

AIFMD 2 also extends the scope of the activities that can be undertaken by AIFMs to include the administration of benchmarks and undertaking credit servicing activities. AIFM groups that have been required to establish separate legal entities to undertake these additional activities may wish to consider whether the performance of such activities should be folded into a single entity.

In addition, AIFMs will be required to implement robust conflicts of interest arrangements to: (a) prevent conflicts arising out of the extension in scope of their activities, or (b) identify, manage, and monitor such conflicts.

Key action points for AIFMs include:

• Reviewing and updating conflicts of interest policies and controls and notifying the home state regulator accordingly;
• Reviewing existing activities (including at a group level) and taking steps to obtain regulatory authorisation to cover any new activities (i.e., administering benchmarks and/or conducting credit servicing activities); and
• Considering whether to consolidate group structures into a single legal entity to achieve better regulatory capital and operational efficiency.

Third-country marketing

Unfortunately, AIFMD 2 fails to harmonise and facilitate improved access rights for third country marketing into the EU markets. Rather, it simply amends some of the conditions for third country marketing under the National Private Placement Regime. In particular, such marketing will only be allowed to be conducted by non-EU AIFMs that are not located in the following countries:

• A “high-risk third country” under the EU’s anti-money laundering framework. This replaces the current reference to the FATF list of non-cooperative countries and territories;
• A country which does not apply the standards laid down in the OECD Model Tax Convention on Income and on Capital or does not ensure an effective exchange of information in tax matters; and
• A country mentioned on the revised EU list of non-cooperative jurisdictions for tax purposes.

Grandfathering

In summary, AIFMD 2 includes the following transitional provisions:

• For AIFs incorporated before 15 April 2024: The requirements for open-ended loan-originating AIFs, the 20% single borrowing limitation, and the leverage limits will not apply until 16 April 2029.
• For AIFs incorporated before 15 April 2024 that do not raise additional capital after that date: There is no requirement to comply with the requirements referenced directly above.
• For AIFs that originated loans before 15 April 2024: The loans do not have to comply with the restrictions on granting loans to certain borrowers, the risk retention requirements, and the credit risk policies and procedures requirements.

The new regulatory reporting requirements will not apply until 16 April 2027.

Next steps

While AIFMD 2 has yet to be fully implemented in each Member State, further amendments to the AIFMD framework are already on the horizon following the adoption of a package of measures (the so-called “market integration package”) by the European Commission on 4 December 2025. We will provide further details on these measures in a subsequent client briefing.

In the meantime, AIFMs should be busily implementing their AIFMD 2 project plans, while maintaining a watchful brief on Member State implementation legislation and guidance.

If you would like to discuss the proposed changes introduced under AIFMD 2, please reach out to Partners, Karen Butler, Josh Dambacher, and Christopher Hilditch, and Associate, Michal Chajdukowski.