The new AIFMD Directive’s roll-out unpacking main impact on IFMs

The proposal reviewing AIFMD and the UCITS Directive (the new Directive) was adopted by the Council on 26 February 2024. EY Luxembourg’s Laurent Capolaghi, Private Equity Leader, and Vincent Remy, Private Debt Leader, highlight some of the main changes impacting investment fund managers.

In November 2021, the European Commission published a proposal amending two of the most important European pieces of regulation for investment fund managers: the AIFMD1 and UCITS Directive2 The proposal aimed to harmonize and improve the flexibility of the regimes by reviewing the provisions concerning delegation, liquidity management, ancillary services and loan origination, among others. The new Directive will be published in the Official Journal shortly, and 20 days thereafter the changes will come into effect. EU Member States will then have two years for national transposition – it is thus expected to apply from Q1 2026. Here are some of the new Directive’s most impactful changes.

Eligible services for IFMs

Both administration of benchmarks and credit servicing are now included under ancillary services under AIFMD II. Both UCITS ManCos and AIFMs will be allowed to provide non-core services without being authorized for the services of management of portfolios. Other functions an IFM may additionally perform in the course of collective management have also been expanded to include originating loans on behalf of AIFs, and servicing securitization special purpose entities.

Clarity and direction around loan origination

The new Directive confirms that loan origination should be a permitted activity for AIFMs, and determines the requirements for risk retention, leverage cap and diversification of risks. It sets out that open-ended loan-origination funds should have liquidity risk management systems aligned with their investment strategy, and dictates transparency and compliance requirements for the AIFM managing the loan-origination fund.

At least two LMTs required for open-ended AIFs

The new Directive requires open-ended AIFs and UCITS to have at least two liquidity management tools from a list defined in its Annex. There is also a requirement for notification when (de)activating a liquidity management tool (LMT).

New substance requirements

At a minimum, two individuals who are either employed on a full-time basis by the management company, or are executive members of its governing/management body, must be wholly dedicated to the business operations of the company, and resident of the European Union.

How can Luxembourg leverage this new Directive?

Luxembourg is already very well positioned, thanks to its attractive investment fund toolbox and the overall supportive ecosystem for funds. Nevertheless, two elements appear critical to maintain the current competitive edge and provide certainty to both LPs and GPs:

In line with ”Accord de Coalition” issued by the new Government, Luxembourg shall adopt the new Directive without adding any new local domestic requirements (i.e., “a minima” adoption). Secondly, the interpretation of the Luxembourg National Competent Authority shall remain pragmatic and aligned with the objective pursued by the Directive.

A closer look at the new Directive, including details about authorization processes, delegation, marketing, undue costs, depositary, reporting, fund names, investor protection and white labelling, has been developed and is available via this link.

1 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers, as amended.

2 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, as amended.