AIFMD 2.0: Key takeaways for asset managers

21 May, 2024

Europe Funds AIFM Private Equity Real Estate Venture Capital Private Debt

Thomas Fahl, Global Head of AIFM Services and Peter Corry, Head of Fund Services in Luxembourg explore the key changes introduced by AIFMD 2.0, focusing on what asset managers need to know ahead of 16th April 2026.

Key takeaways:

Hold your horses, most asset managers can relax: Unless you're in loan origination or applying for a new AIFM license, AIFMD 2.0 likely won't have a significant impact on you.
Loan origination takes centre stage: AIFMD 2.0 clarifies the rules around loan origination by AIFs. If you manage loan origination funds, be aware of the new limits on concentration, leverage, and risk retention requirements, but also the grandfathering rules for existing funds.
Substance requirements for AIFMs tighten: The bar for obtaining an AIFM license has been raised. Stringent substance requirements mean setting up a new AIFM might be more challenging.
More to come: AIFMD 2.0 is just the first step. National regulations and further guidance from ESMA are expected over the next two years.

In short, if you're not in loan origination, you can breathe a sigh of relief. But for those involved, AIFMD 2.0 brings new requirements to consider.

What is AIFMD 2 and when does it come into force?

AIFMD is the piece of regulation that came into force in 2011, with the aim to create a comprehensive and effective regulatory and supervisory framework for alternative investment fund managers within the EU.

In February 2024, the European Parliament has revised AIFMD with regards to delegation, liquidity risk management, supervisory reporting, depositary provision, custody services and loan origination by alternative funds.

AIMFD 2.0 has entered into force on 15 April 2024 and will take effect on 16 April 2026.

What are the key changes in AIMFD 2?

Expanded scope of activities: Expansion in the scope of activities that AIFMs can undertake, including administration of benchmarks and credit servicing.
Delegation arrangements: Revised delegation arrangements, allowing AIFMs to delegate core functions and noncore services to third parties while ensuring compliance with regulatory provisions.
Loan origination funds: AIFMD 2 clarifies the ability of AIFs to originate loans under certain conditions, e.g. being required to retain an economic interest of 5% of the notional loan value and being held for specific periods.
Depositary arrangements: Depositaries will no longer be required to be established in the same Member State as the relevant EU AIF, however only under specific conditions to be applied on a case-by-case basis.
Alignment with third countries: Aligns references to non-cooperative jurisdictions with the EU list of noncooperative jurisdictions for tax purposes, ensuring consistency in regulatory standards.

Who needs to worry about AIFMD 2.0?

Loan originators: The most anticipated change is the framework for loan origination by AIFs. For AIFs involved in loan origination, AIFMD 2.0 introduces new restrictions and limitations. Loan originating funds (LOFs) will be required to retain an economic interest of 5% of the notional loan value, be held for specific periods and apply diversification rules. This requires adapting risk management policies and procedures as well as related working practices. If your firm isn't involved in loan origination activities, you can likely disregard most of AIFMD 2.0.
AIFMs: There will be an expansion in the scope of activities that AIFMs can undertake, including administration of benchmarks and credit servicing. However, the additional activities allowed for AIFMs (like benchmark administration) seem niche and there are already specialised providers for credit services, so it is unlikely AIFMs will wish to expand their teams or face a major shift for their business.
Enhanced substance requirements will only apply to new AIFM applications. For existing firms, the requirements for demonstrating dedicated senior staff seem similar to what's already expected.
Revised delegation arrangements will allow AIFMs to delegate core functions and noncore services to third parties. However, the increased focus on delegation arrangements feels a bit overstated. AIFMs already understand the limitations around delegation and can delegate various functions as needed.
Depositaries: Depositaries will no longer be required to be established in the same Member State as the relevant EU AIF, under specific conditions. However, we don’t anticipate this having much significance for depositaries, nor for those operating funds within the primary EU fund domiciles. This suggests the concern is relatively isolated and doesn't have a widespread impact, it certainly does not provide a “depositary passport”.

What are the new limits for loan originating fund (LOF) asset managers?

AIFMD 2.0 brings concrete limitations for asset managers already active in loan origination. Here's a breakdown of the key points:

Investment and concentration limits: Diversification is now explicitly emphasised. AIFMs cannot originate loans exceeding 20% of the fund's total assets to a single borrower. This ensures a spreading of risk.
Leverage limits: For the first time, there are restrictions on overall leverage: 175% for open-ended funds and 300% for closed-ended ones.
Retention requirement: AIFMs must retain 5% of the risk on their own balance sheet for originated loans. This promotes "skin in the game" and aligns interests with investors.
Grandfathering: Existing loan origination funds that our no longer in fund raising have a five-year grace period to comply.
Restrictions on related party loans: AIFMs cannot grant loans to themselves, staff, the depositary, delegates, or any related parties within the group. This prevents potential conflicts of interest and abuse.

Overall, these new limitations aim to create a more controlled and transparent environment for loan origination within AIFMD. Asset managers active in this asset class need to be aware of these regulations and adjust accordingly to comply with the new rules.

What will be the impact of AIMFD 2.0 on gaining an AIFM licence?

AIFMD 2.0 will make it more difficult for new firms to enter the market.

There will likely be specific requirements regarding substance, which means having a real presence and activity in a jurisdiction.
Obtaining approval for a license will likely become more complex due to these new requirements.

This situation makes it even less attractive to try to set up a new firm from scratch to get licensed.

Instead, it might be more advantageous to use an existing firm that already has a necessary AIFM license and fulfils the required substance requirements.

What will be the changes to the depositary passport?

AIFMD 2.0 offers some, but limited, flexibility regarding the location of a fund's depositary.

Pre-AIFMD 2.0: Depositary and AIF had to be in the same jurisdiction, for example it was not possible to appoint a Luxembourg based depositary for an AIF located in the Netherlands.
AIFMD 2.0 reform: Under certain conditions, it is now possible to appoint a depositary from another jurisdiction than the AIF’s home jurisdiction.
Justification burden: The AIFM needs to demonstrate a lack of suitable depositary services within the fund's home member state. This would be difficult to argue in established financial centres like Luxembourg, Dublin.

Overall, while AIFMD 2.0 allows some cross-border depositary selection, the practical hurdles are high. Choosing a depositary in the same jurisdiction as the fund seems likely for most asset managers.

AIFMD 2.0: The fog of implementation details

The arrival of AIFMD 2.0 might seem like a clear-cut event, with the directive published and technically enforced since mid-April. However, there's a significant period of uncertainty ahead. Here's why:

Local implementation: The next two years are crucial. EU member states, like Luxembourg, need to translate the directive into their own laws. Ideally, this will be done swiftly and without excessive "gold plating" (adding stricter rules than the directive itself). The new Luxembourg government seems committed to avoiding this burden on the financial sector.
ESMA's level 2 guidance: AIFMD 2.0 is just the foundation and we're still waiting for the more detailed technical guidance (Level 2) from the European Securities and Markets Authority (ESMA). This will clarify critical aspects like liquidity management for loan origination funds, both closed-ended and open-ended.
Watch this space: The full impact of AIFMD 2.0 remains unclear at this stage. We need to see how national laws are implemented and what additional layers ESMA adds.

In short, it's too early for a comprehensive picture. Be aware of the baseline set by AIFMD 2.0, but understand that further details will emerge in the next two years.

How can Ocorian help with AIFMD 2.0?

Ocorian can answer questions about the impact of AIMFD 2.0 on your business and provide a quick, cost effective and compliant way to realise your fund projects, including for cross-border distribution.

Our expertise spans all alternative investment asset classes including private equity, venture capital, infrastructure, real estate, private debt and fund of funds.