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In brief

On 7 February 2024, the European Parliament voted the proposed Directive amending the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and the UCITS Directive (2009/65/EC) relating to delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services, and loan origination by alternative investment funds (“AIFMD II“).

The text of the directive will now be voted by the European Council. Once fully voted, the directive will enter into force on the 20th day of its publication in the Official Journal of the European Union.

EU member states will have two years from the directive’s entry into force to transpose it within their national law.

For further information and to discuss what this development might mean for you, please get in touch with your usual Baker McKenzie contact.

Key changes

Based on the voted text, the key changes are as follows:

Loan-originating funds

The AIFMD II defines a loan-originating alternative investment fund (AIF) as an AIF: (i) whose investment strategy is mainly to originate loans; or (ii) where the notional value of the AIF’s originated loans represents at least 50% of its net asset value.

Under AIFMD II, the loan-originating funds will be governed by the following rules:

  • Loan-originating AIFs are encouraged to be closed-ended (i.e., no redemption right for the investors), unless the alternative investment fund manager (AIFM) demonstrates compatibility with the investment strategy and redemption policy, with the European Securities and Markets Authority (ESMA) developing draft regulatory technical standards for open-ended AIF compliance requirements.
  • Leverage limits for loan-originating AIFs are set at 300% for closed-ended and 175% for open-ended, calculated as the ratio between exposure and net asset value.
  • A 20% concentration limit on loans to a single borrower applies if the borrower is a financial undertaking, AIF, or undertaking for the collective investment in transferable securities (UCITS).
  • AIFMs must retain 5% of originated loans transferred to third parties until maturity (up to eight years for consumer loans) or at least eight years for other loans.
  • AIFMs are prohibited from managing AIFs with an “originate-to-distribute strategy,” with the sole purpose of transferring those loans to third parties.
  • Transitional rules distinguish between existing AIFs’ originating loans (with a five-year opt-in period for AIFMs) and existing loans (benefiting from a rules’ implementation exemption). 

Liquidity risk management tools (LMTs)

The AIFMD II will require EU and non-EU AIFMs to disclose the AIF’s liquidity risk management system to investors before they enter into a subscription agreement.

An AIFM overseeing an open-ended AIF will be required to choose a minimum of two liquidity management tools, such as redemption gates, notice periods, liquidity fees, swing/dual pricing, an anti-dilution levy, or redemptions in kind. Money market funds are, as an exception, only allowed to use one tool.

The AIFM must establish and follow detailed procedures for activating and deactivating selected LMTs. Any unusual use of these tools, including suspension of redemptions or side pockets, must be promptly reported to the national competent authority (“NCA“) of the home member state. The NCA then notifies without delay the host member state’s NCA and the ESMA, and if there are potential risks to financial stability and integrity, the financial system is the European Systemic Risk Board. The ESMA is tasked with creating regulatory standards for loan-originating AIFs’ open-ended structure and guidelines on selecting and calibrating liquidity tools for AIFM risk management and financial stability mitigation.


EU AIFMs will be required to report the delegation arrangements they may have to the NCA, including disclosure of the total delegated assets under management, the percentage of the portfolio, and details about the persons involved.

AIFMD II grants the NCA of the AIF’s home member state the authority, following a case-by-case evaluation of the absence of relevant depositary services, to permit institutions from another member state to serve as depositaries. This is contingent upon the AIFM submitting a justified request, demonstrating the lack of suitable depositary services in the home member state, and proving that appointing a depositary from another member state aligns with the AIF’s investment strategy. Additionally, this is subject to the aggregate amount of assets in the national depositary market of the AIF’s home member state not exceeding EUR 50 billion or its equivalent. When such an appointment is approved, the relevant NCA must inform the ESMA. The AIFMD II also specifies conditions for appointing a depositary from a third country, including the country not being high risk, having a signed agreement with the home member state, and not being listed in the EU’s noncooperative jurisdictions for tax purposes. If these conditions change post-appointment, a new depositary must be appointed within a reasonable period, not exceeding two years, considering investors’ interests.

Independent directors

Under AIFMD II, AIFMs managing AIFs marketed to retail investors are encouraged to appoint at least one non-executive or independent director to the board of the AIFM. In making that appointment, the AIFM has to ensure that the director is independent in character and in judgment and has sufficient expertise and experience to be able to assess whether the AIFM is managing the AIF or UCITS in the best interest of investors.

Cost and charges

The AIFMD II will also require the AIFM to annually report all of the direct and indirect fees and charges incurred by the AIF. In addition, the AIFM will have to annually disclose the charges and expenses incurred by investors, regardless of whether they are incurred directly or indirectly.


Laurent Fessmann is a Banking & Finance partner specializing in the formation and structuring of Luxembourg investment funds. He is a former managing partner of the Luxembourg office and the current co-chairman of the Baker McKenzie's Global Funds Steering Committee. He started his career in 1996 as in-house counsel in a French CAC40-listed company where he worked intensively on LBO transactions, capital markets and corporate law matters. Mr. Fessmann joined a Luxembourg business law firm where he became a partner prior to founding his own law firm in 2009. He is a highly regarded professional and recognized legal professional in Chambers, Legal 500, IFLR notably. He contributes time and knowledge in several market participant industry associations in particular as co-chairman of the ABBL/ALFI depositary forum working groups, the European Public Real Estate Association, the Luxembourg Private Equity Association and the Association of Global Custodians. He is also a regulator at fund conferences such as ALFI, IBCI and regularly invited to speak on internal or bank seminars.


Catherine Martougin is a partner in the Funds & Asset Management team of the Baker McKenzie Luxembourg office. She has more than 20 years' experience in business law. Prior to joining the Firm, she practiced in elite international law firms in Paris and Luxembourg.

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