Alternative Investment Fund Managers Directive (AIFMD 2) - What do I need to know?

Are you ready for AIFMD 2?

Long in the works, AIFMD 2 will start applying from 16 April 2026, making significant changes to the AIFMD regime in the EU. Fund managers need to ensure they are compliant with the new requirements, as this deadline approaches. 

Who does AIFMD 2 impact?

The changes made by AIFMD 2 apply to both EU AIFMs and, for a subset of changes, non-EU AIFMs marketing AIFs in the EU.

What changes does AIFMD 2 make?

AIFMD 2 makes a host of changes to the AIFMD regime, but we have summarised the most impactful changes for compliance by fund managers below:

• Liquidity Risk Management:
  • AIFMD 2 requires “open-ended AIFs” to select at least two “liquidity management tools”, set out in an Annex (and further clarified in RTS and guidelines), and incorporate these into the relevant fund documents. These include redemption gates, extension of notice periods, swing pricing etc. In addition, suspension of subscription/redemption and side pockets should be available for use in exceptional circumstances.
  • Importantly, “open-ended AIFs” include any AIF where the shares or units are, at the request of any of its shareholders or unitholders, repurchased or redeemed prior to the commencement of its liquidation phase or wind-down, out of the assets of the AIF. Hence, it captures AIFs that are not necessarily thought of as fully “open-ended” in the colloquial sense.
  • AIFMD 2 also introduces new powers for regulators to intervene in the use of liquidity management tools by AIFMs. These changes also apply to both EU and non-EU AIFMs, and hence leave open questions about the extent to which the more direct liquidity risk management rules should be considered by non-EU AIFMs.
• Loan Originating Funds:
  • Loan originating AIFs (essentially, funds that mainly originate loans, commonly referred to as credit funds) must be closed-ended unless they can demonstrate a liquidity risk management system compatible with their investment strategy and redemption policy. Further details of how this can be demonstrated are set out in a draft RTS, but this RTS has been “de-prioritised” by the EU Commission, and hence will not be officially adopted until October 2027 at the earliest. This has created uncertainty about how to demonstrate compliance with this requirement in the meantime.
  • Loan originating AIFs are also subject to new leverage limits, of 175% for open-ended AIFs, and 300% for closed-ended AIFs.
• Loan Origination:
  • Even for funds that are not “loan originating AIFs”, AIFMD 2 introduces new restrictions on loan origination activities (i.e. lending). 
  • AIFMD 2 introduces a new 5% “risk retention” requirement for originated loans (subject to certain exceptions), essentially restricting the ability of AIFs to originate and entirely sell off loans.
  • A 20% single borrower limit is also introduced for certain borrowers, alongside a ban on certain loans due to potential conflicts (e.g. loans to the AIFM, certain staff etc.).
  • AIFMs are also required to have improved policies and procedures around loan origination. 
• Disclosures and reporting:
  • AIFMD 2 introduces new transparency obligations into Article 23, including in relation to liquidity risk management, fees and charges and originated loans. Notably, these apply to non-EU AIFMs as well as EU AIFMs (again, raising the question about the extent to which liquidity risk management requirements need to be considered by non-EU AIFMs).
  • There are also new reporting obligations to home state regulators, requiring significantly more detail on risk profile, delegation arrangements and marketing. However, these only apply from April 2027. 
• Marketing:
  • Currently, non-EU AIFMs and non-EU AIFs are banned from marketing in the EU if the AIFM or AIF is established in a country on the FATF blacklist. AIFMD 2 replaces the FATF blacklist with the EU’s own AML list of high risk third countries (a much longer list) and widens the ban on marketing to include non-EU AIFMs and non-EU AIFs from those jurisdictions included on the EU’s list of non-cooperative countries for tax purposes.
  • AIFMD 2 also requires non-EU countries where AIFMs / AIFs are established to have signed an agreement with each member state where there is marketing that complies with OECD model tax treaty requirements.
• Substance and delegation:
  • AIFMD 2 enhances the “substance” requirements for AIFMs, placing requirements around how many staff / governing body members they should have committed to the AIFM and based in the EU.
  • Delegation rules have also been explicitly extended to all AIFM functions listed in Annex I AIFMD, and permitted ancillary services (although there is a carve-out for specific marketing arrangements).

What about grandfathering for existing funds?

“Grandfathering” (i.e. making allowance for pre-existing funds / practices) is complex in AIFMD 2, but the key takeaways are:

• For AIFs constituted before 15 April 2024: Requirements for loan originating AIFs to become open-ended, concentration limits and leverage limits do not apply until 16 April 2029. However, leverage / concentration should not be increased further where it is above the mandatory limits.
• For AIFs constituted before 15 April 2024 that do not raise additional capital after that date: Indefinite grandfathering for the obligations immediately above.
• For AIFs that originated loans before 15 April 2024: Those loans (not the AIF as a whole) do not have to comply with restrictions on granting loans to certain borrowers, “risk retention” and policies and procedures requirements.

What should I do to prepare?

Key steps to take are:

1. Scope which funds are “loan originating AIFs”, which funds are open-ended, and which funds are originating loans, as this is key to determining the application of the most onerous obligations. 
2. Scope which funds benefit from “grandfathering”, and which obligations need to be complied with from 16 April 2026 for the above. Based on this, revisit policies and procedures, loan origination strategies and fund documentation to ensure the appropriate compliance at the right time. 
3. Ensure Article 23 disclosures are updated, with new disclosures considered, particularly around more strategic issues such as costs and liquidity management.
4. Review arrangements “delegating” Annex I activities to ensure compliance with the new scope of delegation requirements.
5. Ensure there is appropriate substance / staffing in the EU. 
6. Particularly for non-EU AIFMs / AIFs, consider the impact of new marketing restrictions, and whether this will impact the scope of jurisdictions going forward. 
7. Ensure data and reporting processes are enhanced in advance of the 16 April 2027 deadline for enhanced reporting.

If you need any assistance, please do reach out to the key contacts listed.