AIFMD 2.0: What Non-European Fund Managers Need to Know

As Europe’s alternative investment landscape evolves, the Alternative Investment Fund Managers Directive (AIFMD) has undergone its most significant update yet. On 26 March 2024, the European Union published AIFMD 2 (Directive EU 2024/927), a revision that will be implemented into national laws by 16 April 2026.

This new framework aims to increase transparency, strengthen investor protection, and improve risk management for both EU and non-EU fund managers.

1. Stronger Delegation Rules

AIFMD 2.0 expands the scope of delegation rules to cover all core and ancillary functions, including fund administration, portfolio management, and marketing.

Fund managers must now provide detailed information to their National Competent Authorities (NCAs) about delegates, their resources, and monitoring procedures.

Example:
A Luxembourg fund delegating portfolio management to a London team will need to report the number of full-time staff overseeing the delegation and describe the delegated activities in detail. This ensures proper oversight and reduces regulatory risk.

2. EU AIFM Substance and Governance

Under AIFMD 2.0, at least two EU-domiciled individuals must hold key operational roles and be fully committed to the business. Funds marketed to retail investors are encouraged to appoint independent or non-executive directors where possible.

Example:
A French or Luxembourg-based fund ensures that investment decisions are made locally and independently, aligning operations with investor interests and regulatory expectations.

3. Loan Origination Funds (LOFs)

One of the most significant innovations under AIFMD 2.0 is the introduction of Loan Origination Funds (LOFs). These funds can lend directly to companies, offering an alternative to traditional bank financing.

Key requirements include:

• Loans must represent at least 50% of the fund’s net asset value (NAV).

• Managers must obtain approval from their national authority.

• The lending strategy must be disclosed in the fund’s prospectus.

Example:
A private debt fund lending to SMEs must assess credit risk carefully, diversify loans across borrowers, and retain 5% of the notional value if loans are sold on the secondary market.

Leverage limits:

• Open-ended LOFs: capped at 175%.

• Closed-ended LOFs: capped at 300%.

Robust liquidity management policies must align with the fund’s investment strategy.

4. Enhanced Liquidity Management

AIFMD 2.0 introduces stricter liquidity management rules. EU AIFMs must select at least two liquidity management tools from a prescribed list, which may include gates, side pockets, or suspension of redemptions.

Policies must clearly define how and when these tools can be activated or deactivated, ensuring that funds can respond effectively during periods of market stress.

Example:
A pan-European real estate fund may combine gates and side pockets to protect investors during times of high redemption requests.

5. Opportunities and Risk Management

The new framework creates significant opportunities for private debt and loan origination funds, which offer higher yields than traditional government bonds while directly financing companies. However, these instruments are typically illiquid and carry credit risk, particularly when lending to SMEs and start-ups.

To mitigate this, managers must ensure:

• Diversification across borrowers and sectors.

• Continuous monitoring of credit exposures.

• Strong liquidity management and alignment with investment objectives.

Example:
By lending to a diversified portfolio of SMEs across industries, a fund can reduce concentration risk while supporting innovation and Europe’s energy transition.

Conclusion

AIFMD 2.0 marks a turning point for the European alternative investment market. Non-European fund managers must adapt their structures, governance, and operational frameworks to ensure compliance by April 2026.

With the introduction of Loan Origination Funds, enhanced delegation, and liquidity management requirements, AIFMD 2.0 empowers funds to finance the real economy while maintaining high standards of investor protection and transparency.

At Dorhyan.eu, we help managers navigate these regulatory changes, from structuring compliant entities to implementing robust governance and accessing European investors effectively.

Sources

• Deloitte – Navigating the New Frontier: Understanding the Impact of AIFMD 2 on EU Alternative Investment Fund Managers (2024)

• Directive (EU) 2024/927 – EUR-Lex

• Paperjam – AIFMD 2.0: Focus sur les fonds de dettes privées (2024)