AIFMD II: what Europe's fund managers need to know about the new loan origination regime

The amendments to the Alternative Investment Fund Managers Directive, known as AIFMD II, that were published in November 2023 have introduced a pan-European Economic Area (EEA) loan origination regime, alongside new liquidity management tool requirements. The introduction of the loan origination provisions in AIFMD II can be viewed as the most substantial changes to the current regime governing private funds in Europe.

The regime will partially overwrite the patchwork of rules that alternative investment fund managers (AIFMs) currently have to deal with across the EEA. AIFMD II introduces a specific regime applying to EEA AIFMs who manage alternative investment funds (AIFs) dedicated to loan originating. This is in addition to general rules that will apply to all AIFs undertaking loan-originating activities.

Loan origination activities are defined as "the granting of a loan directly by an AIF as the original lender or indirectly through a third party or special purpose vehicle which originates a loan for or on behalf of the AIF, where the AIFM or the AIF is involved in structuring the loan, or defining or pre-agreeing its characteristics, prior to gaining exposure to the loan”.

AIFMs with loan-originating AIFs will need to get up to speed with and be aware of their compliance obligations under the new regime.

AIFM requirements

Broadly, the following requirements will apply to all AIFMs carrying out any loan origination activities on behalf of AIFs.

20% diversification limits

When a borrower is another AIF, an EU retail fund – known as a UCITs (undertaking for collective investment in transferable securities) fund – or a financial undertaking, the AIFM must ensure that the notional value of the loans originated to any single borrower by an AIF does not exceed 20% of its capital.

5% risk retention

When an AIF transfers an originated loan to third parties, it must retain 5% of the loan's notional value for eight years or until maturity (where the loan has a shorter term than eight years).

Originate-to-distribute prohibition

AIFMs are prohibited from managing AIFs whose investment strategy is to originate loans with the sole purpose of transferring those loans to third parties. Loans can only be made for the purpose of investing the AIF's capital.

Lending restrictions

AIFs are prohibited from granting loans to its AIFM, any delegate of the AIFM, AIFM staff, its depositary, any delegate of the depositary or to AIFM group entities.

Consumer loans

Member States have the ability, in their territory, to prohibit AIFs from granting loans to consumers (being individuals that act outside their business or trade) and from servicing credits granted to consumers. However, Member States cannot prohibit marketing of an AIF which carries out loan-originating activity.

Disclosure obligations

Any costs linked to the administration of the loans must be disclosed to investors periodically.

Allocation of loan proceeds

Any proceeds of loans originated by an AIF, less administration fees, must be attributed in full to the AIF that originated the loans.

Policies and procedures

AIFMs managing AIFs engaging in loan origination must implement and maintain effective policies, procedures and processes for the granting of loans, for assessing the credit risk as well as administering and monitoring their credit portfolio.

An exemption applies to AIFs that only originate shareholder loans. This providing the notional value of the loans do not exceed in aggregate 150% of that AIF's capital.

AIF-only requirements

The following requirements only apply to AIF dedicated to loan origination. This is where the fund has an investment strategy to mainly originate loans or where the notional value of the AIF's originated loans represents at least half of the fund's net asset value (NAV).

Open-ended prohibition

A loan-originating AIF must be closed-ended, unless the AIFM can show the AIF's liquidity risk management system is compatible with its investment strategy and redemption policy. 
The European Securities and Markets Authority (ESMA) have been directed to develop the draft regulatory technical standards settling the criteria to determine whether a loan-originating AIF can be open-ended.

Leverage restriction

The leverage of a loan-originating AIF cannot exceed 175% where that AIF is open-ended or 300% where the AIF is closed-ended. (The percentage is expressed as the ratio between the AIF's exposure and NAV calculated according to the commitment method.)
An exemption applies to AIFs that only originate shareholder loans; this is providing that the notional value of the loans does not exceed in aggregate 150% of that AIF's capital.

Provisions offer enhancement

The European Union views the loan origination provisions in AIFMD II as enhancing regulatory clarity, risk management, investor protection, operational standards and facilitate cross-border activities.

AIFMs will need to prepare to comply with the regime. For example by updating internal policies and procedures and reviewing their disclosure obligations to investors in their fund documentation. AIFMs should also review existing loan portfolios for areas of concentration risk, risk retention and lending restrictions.

April 2026 compliance

Member States are currently transposing the rules, which will largely become effective on the 16 April 2026 – by which date AIFMs will need to be compliant. Certain grandfathering provisions will apply.

Further guidance relating to the open-ended loan origination will be provided by ESMA to illuminate the criteria used to determine whether a loan-originating AIF can operate as an open-ended fund.

Osborne Clarke comment

We see AIFMD II's loan origination provisions as the most substantial changes to the EU's current regime governing private funds. The ability for AIFs to originate loans is currently restricted in certain EEA countries, so we welcome the introduction of a dedicated pan-EEA loan origination regime. It is helpful that the AIFMD II explicitly acknowledges that AIFMs may provide loan origination on behalf of AIFs, as part of the list of "additional services" AIFMs can be authorised to provide.

The regime does, however, introduce significant requirements and restrictions. As introductory rules, these may be unnecessarily restrictive. An overly cautious regulatory policy risks less favourable outcomes than otherwise could have been achieved. This is reminiscent of the EU's regulation of long-term investment funds as well as its sustainability regime. The former has since been fundamentally redrafted since its initial version, the latter is currently undergoing the same process.

While the new loan origination regime applies to EU AIFMs, EEA member states could apply the requirements to non-EU AIFMs that market AIFs to EU investors under the member states' national private placement regime.

AIFMs must now carefully consider which "grandfathering" provisions apply to the specific loan-originating provisions within the AIFs that they currently manage, as well as how individual member states implement the regime. It is vital that any AIFMs with loan-originating AIFs are aware of their compliance obligations under the new regime.

If you would like help navigating the new regime to evaluate its impact on your business, please contact our experts.

This Insight was written with the assistance of Yazmin Adrissi as a trainee solicitor (now fully qualified) at Osborne Clarke.