Key Takeaways
- • AIFMD II's implementation date of 16 April 2026 is approaching, introducing a harmonised framework for loan origination by alternative investment funds (AIFs) that will materially affect EU managers of credit funds.
- • Loan-originating AIFs, defined as funds whose strategy is mainly loan origination or whose originated loans represent at least 50% of NAV, face leverage caps of 175% of NAV (open-ended) and 300% of NAV (closed-ended).
- • Risk retention requires funds to hold 5% of the notional value of sold originated loans until maturity, or for at least eight years where maturity exceeds eight years; consumer loans must be retained to maturity.
- • Loans to any single financial undertaking, fund or UCITS may not exceed 20% of fund capital, to be met within 24 months of first closing (extendable by up to 12 months with regulator approval).
- • Open-ended loan-originating funds must select at least two liquidity management tools, with RTS 5, published 27 February 2026, setting the characteristics those tools must meet.
Summary
According to a practical overview published by Ropes & Gray LLP, the revised Alternative Investment Fund Managers Directive (AIFMD II) takes effect on 16 April 2026 and introduces a harmonised framework for loan origination by AIFs. The rules will materially affect EU managers running credit funds. AIFMD II defines loan origination as granting a loan either directly as original lender, or indirectly through a third party or special purpose vehicle (SPV) where the manager or fund structures the loan or pre-agrees its key characteristics before the fund gains exposure. The rules therefore capture both direct lending and common SPV structures. They apply to all authorised EU managers for any fund they manage, while non-EU managers marketing into the EEA are generally outside scope, subject to any goldplating by member states.
Baseline requirements apply to any fund that originates loans. Managers must maintain documented credit policies covering loan granting, credit risk assessment and ongoing portfolio monitoring, reviewed at least annually. Risk retention requires funds to keep 5% of notional value on transferred loans until maturity, or for at least eight years if maturity exceeds eight years, with exemptions for liquidation, sanctions or product compliance, implementing investors' best-interest strategies, and detected credit deterioration. Originate-to-distribute strategies are prohibited, and funds may not lend to the manager, its staff, the depositary, delegates, or group entities, subject to a narrow intra-group carve-out. Member States may also prohibit consumer lending within their territories.
For loan-originating AIFs, leverage is capped at 175% of NAV for open-ended funds and 300% for closed-ended funds. Loan-originating funds must be closed-ended unless the manager demonstrates to its home regulator that its liquidity risk management is compatible with the strategy and redemption policy. Funds constituted before 15 April 2024 are grandfathered until 16 April 2029 for concentration, leverage and closed-ended rules, but may not increase exposures above limits during that period. Managers must also disclose loan portfolio composition, and annually report fees and any parent, subsidiary or SPV used.
Open-ended funds, including loan-originating funds with a regulatory exception to the closed-ended requirement, must select at least two liquidity management tools from Annex V. RTS 5, published 27 February 2026, specifies requirements: redemption gates need a pre-determined activation threshold with pro-rata execution; notice period extensions must not alter redemption frequency; and redemption fees, swing pricing, dual pricing and anti-dilution levies must incorporate estimated explicit transaction costs. Ropes & Gray notes the RTS does not take effect until next year, though Level 1 obligations apply from mid-April and may require constitutional document updates. The firm recommends managers review credit policies, test leverage and concentration against the new caps, update offering and investor documents, and monitor national implementation.
Baseline requirements apply to any fund that originates loans. Managers must maintain documented credit policies covering loan granting, credit risk assessment and ongoing portfolio monitoring, reviewed at least annually. Risk retention requires funds to keep 5% of notional value on transferred loans until maturity, or for at least eight years if maturity exceeds eight years, with exemptions for liquidation, sanctions or product compliance, implementing investors' best-interest strategies, and detected credit deterioration. Originate-to-distribute strategies are prohibited, and funds may not lend to the manager, its staff, the depositary, delegates, or group entities, subject to a narrow intra-group carve-out. Member States may also prohibit consumer lending within their territories.
For loan-originating AIFs, leverage is capped at 175% of NAV for open-ended funds and 300% for closed-ended funds. Loan-originating funds must be closed-ended unless the manager demonstrates to its home regulator that its liquidity risk management is compatible with the strategy and redemption policy. Funds constituted before 15 April 2024 are grandfathered until 16 April 2029 for concentration, leverage and closed-ended rules, but may not increase exposures above limits during that period. Managers must also disclose loan portfolio composition, and annually report fees and any parent, subsidiary or SPV used.
Open-ended funds, including loan-originating funds with a regulatory exception to the closed-ended requirement, must select at least two liquidity management tools from Annex V. RTS 5, published 27 February 2026, specifies requirements: redemption gates need a pre-determined activation threshold with pro-rata execution; notice period extensions must not alter redemption frequency; and redemption fees, swing pricing, dual pricing and anti-dilution levies must incorporate estimated explicit transaction costs. Ropes & Gray notes the RTS does not take effect until next year, though Level 1 obligations apply from mid-April and may require constitutional document updates. The firm recommends managers review credit policies, test leverage and concentration against the new caps, update offering and investor documents, and monitor national implementation.
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