The European Commission’s long-awaited sequel to the AIFM Directive is here. Directive (EU) 2024/927 1 -widely known as “AIFMD II” – introduces new rules on delegation, loan origination, fee transparency, liquidity tools, and more. Here’s what Luxembourg-based sponsors and managers need to know.
As part of its broader Capital Markets Union initiative, the European Union has adopted a significant revision of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (the “AIFMD“), commonly referred to as AIFMD II. This long-anticipated legislative update, adopted in the first quarter of 2024, is set forth under Directive (EU) 2024/927 – published in the Official Journal of the European Union2 and aims to refine and harmonize the regulatory landscape governing alternative investment funds (“AIFs”) across the European Union.
With transposition into national laws required by 16 April 2026, this is the appropriate time for AIFMs and investors to assess the legal and operational consequences of the new rules.
At Lextrust Law Firm, we advise a wide range of Luxembourg-based and international fund sponsors, managers, and limited partners. The following summary presents the principal changes introduced by AIFMD II and outlines the key compliance considerations.
- Enhanced Rules on Delegation and Substance
One of the central themes of AIFMD II is the reinforcement of supervisory oversight concerning delegation arrangements. While the Directive maintains the existing delegation model, which remains foundational to fund structuring in Luxembourg, it introduces significantly heightened transparency obligations.
Pursuant to Article 1(9) of AIFMD II amending Article 20 of AIFMD, AIFMs delegating portfolio management or risk management functions to third-country entities will be required to notify the competent authority of their home Member State and to provide granular information to the European Securities and Markets Authority (ESMA).
Where such delegation is deemed substantial, enhanced reporting obligations will be triggered, and the AIFM must justify the maintenance of adequate substance and control within the EU. ESMA is furthermore mandated to issue periodic reports identifying delegation trends and possible regulatory arbitrage.
This framework does not prohibit delegation but introduces closer scrutiny and greater regulatory accountability. Managers operating with delegation chains involving jurisdictions such as the United Kingdom, the United States, or Switzerland should take proactive steps to ensure compliance with the new standards.
- A Harmonized Regime for Loan-Originating AIFs
For the first time, AIFMD II establishes an EU-wide framework governing AIFs engaged in loan origination. This constitutes a major development for sponsors active in private credit and direct lending strategies.
Pursuant to Article 1(8) of AIFMD II introducing new Article 16b into AIFMD, loan-originating AIFs are now required to retain five percent of the notional value of each loan originated, thereby ensuring alignment of interest through a risk retention mechanism. In addition, leverage for open-ended loan funds is capped at one hundred seventy-five percent of net asset value. AIFMs must also implement formalised credit risk assessment procedures and adopt documented policies addressing conflicts of interest and credit risk management.
Luxembourg-domiciled AIFs with lending strategies will therefore need to revise their constitutional and offering documents, as well as their internal governance and risk control policies, in accordance with these new requirements.
- Fee and Cost Transparency
In line with international regulatory trends, AIFMD II significantly strengthens investor protection through enhanced transparency regarding fees and charges.
Article 1(11) of AIFMD II amending Article 23 of AIFMD requires AIFMs to provide investors with detailed, periodic disclosures covering all fees, costs, and expenses borne directly or indirectly by the AIF or its investors. Such disclosures must include explanations of how fees are calculated, the existence of any retrocessions or rebate arrangements, and the cumulative impact of fees on investor returns.
General Partners will therefore need to revise their disclosure templates and internal accounting systems to ensure full compliance. Investors, particularly institutional LPs, are expected to welcome this additional level of detail and clarity.
- Harmonised Liquidity Risk Management Tools (LMTs)
AIFMD II introduces harmonised liquidity risk management tools for open-ended AIFs. Article 1(8) of AIFMD II amending Articles 16a and 16c of AIFMD provide a legal basis for the use of such tools across all Member States.
Under the new regime, AIFMs are authorised to implement mechanisms including the temporary suspension of redemptions, the application of redemption gates, and the establishment of side pockets under clearly defined circumstances. These tools are intended to preserve the integrity of the fund and protect remaining investors during episodes of market stress.
To comply, managers will be required to establish formalised LMT policies and ensure adequate disclosure of their availability and potential use in fund offering documentation. This framework will also require operational preparedness and staff training to ensure timely and effective deployment when needed.
- Depositary Framework and Cross-Border Depositaries
Although AIFMD II does not introduce a single market passport for depositaries, it lays the groundwork for future reforms by introducing clarifications and harmonisation measures.
The revised text includes more specific provisions on the safekeeping and oversight duties of depositaries, particularly where sub-custodians or third parties are involved. These provisions are designed to ensure consistency of investor protection standards across jurisdictions and to reduce regulatory arbitrage in cross-border fund structures.
While the absence of a depositary passport remains a limitation for fund platforms operating across multiple EU Member States, the increased legal certainty may facilitate discussions with depositaries and support improved operational alignment.
- Implications for Non-EU AIFMs and Reverse Solicitation
Importantly, AIFMD II does not alter the current treatment of non-EU AIFMs that do not actively market their AIFs in the European Union. Such managers remain outside the scope of the Directive. However, where non-EU AIFMs rely on national private placement regimes (NPPRs), AIFMD II imposes reinforced transparency and reporting duties.
With regard to reverse solicitation, the revised Directive does not expressly prohibit the practice. Nevertheless, national supervisory authorities stress that reverse solicitation must be demonstrably genuine and fully investor-initiated. Certain regulators, such as the Autorité des Marchés Financiers (AMF) in France and the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in Germany, take a highly restrictive approach, often requiring firms to retain documentary evidence that no marketing activity was conducted.
Accordingly, non-EU sponsors relying on reverse solicitation to access EU capital must adopt robust internal procedures and maintain accurate records to mitigate regulatory risk.
Conclusion: Legal and Strategic Adjustments Required
While AIFMD II does not fundamentally alter the framework established under the original Directive, it introduces substantial refinements aimed at enhancing transparency, harmonisation, and market resilience.
Fund sponsors and managers are advised to take preparatory steps over the coming months to ensure compliance with the revised Directive. This includes reviewing existing delegation arrangements and substance levels, assessing the applicability of the loan origination provisions, revising fee and cost disclosure frameworks, implementing liquidity risk management tools, and reassessing investor onboarding procedures in light of reverse solicitation risks.
At Lextrust Law Firm, our investment fund regulatory team is fully equipped to assist you in understanding and implementing the necessary legal, operational, and strategic adaptations under AIFMD II.
For further information, please contact us to arrange a consultation ahead of the 2026 implementation deadline with:
Jonathan Charles BURGER
Founding Partner
- Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 amending Directives 2011/61/EU
and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of
depositary and custody services and loan origination by alternative investment funds ↩︎ - Official Journal of the European Union L 202, 19 March 2024, p.1 ↩︎
