AIFMD II: what changed for alternative fund managers
AIFMD II transposition completed in April 2026. The changes to delegation, liquidity management, Annex IV reporting, and loan origination are not marginal amendments. Here is what fund managers need to demonstrate compliance with now.
This article is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for advice specific to your situation.
Why April 2026 is the moment that matters
The revised Alternative Investment Fund Managers Directive, commonly referred to as AIFMD II (Directive 2024/927/EU), had a transposition deadline of 16 April 2026. That date has now passed. Member states were required to have national implementing legislation in place, and fund managers operating in the EU were expected to have assessed their compliance position against the new requirements.
AIFMD II is not a wholesale rewrite of the original directive. It is a targeted set of amendments that tighten specific areas where the Commission concluded that the original framework was being used in ways that created regulatory arbitrage, reduced investor protection, or left gaps in supervisory oversight. The areas affected are consequential: delegation arrangements, liquidity management tools, Annex IV reporting obligations, and a new regime covering loan-originating funds.
For fund managers that reviewed the legislative timeline and deferred detailed compliance work, the window has closed. This article sets out what has changed in each area, what demonstrable compliance looks like, and where the documentation burden is heaviest.
1. Delegation: what firms must now prove
Delegation of portfolio management and risk management functions was the single most contested area during the AIFMD II legislative process. The Commission’s concern was that some AIFMs had delegated so extensively that the AIFM itself had become a letter-box entity: nominally responsible for management but operationally dependent on delegates for virtually all substantive functions. The amended directive responds to this concern through enhanced substance requirements and strengthened notification and supervisory review obligations.
The substance requirement
The core change is that an AIFM must be able to demonstrate, on an ongoing basis, that it retains genuine substance in the EU. This goes beyond having a registered office and a board. The AIFM must have the human and technical resources necessary to supervise the delegated functions effectively. That means staff with the expertise to evaluate and challenge the decisions of delegates, not simply to receive reports from them.
The practical question for many fund managers is whether their current staffing model is adequate. A structure in which the AIFM’s investment team consists of one or two individuals who review delegate performance on a quarterly basis is unlikely to satisfy the enhanced substance test if the delegate is making all material investment decisions. The AIFM must be able to demonstrate that it is genuinely supervising, not merely monitoring.
Notification and prior competent authority review
Under the amended framework, certain delegation arrangements require prior notification to the AIFM’s home member state competent authority before they can be implemented. The notification obligation is triggered where the AIFM proposes to delegate portfolio management or risk management to an entity in a third country.
The competent authority has the ability to object to the arrangement before it takes effect. This introduces a pre-approval dynamic that did not exist under the original directive for third-country delegation. Fund managers that have historically notified after the fact, or that have treated delegation as a purely contractual matter, need to build the regulatory notification step into their delegation governance process.
What to document
Compliance with the revised delegation requirements is demonstrated through a combination of governance documentation and operational evidence. The key documents are: a delegation policy that reflects the enhanced substance requirement, oversight logs showing active supervision of delegates rather than passive receipt of reports, records of any pre-implementation notifications to the competent authority, and evidence that the AIFM has the internal expertise to evaluate the delegate’s performance on a substantive basis.
2. Liquidity management tools: from discretion to obligation
The original AIFMD framework permitted AIFMs to use liquidity management tools such as redemption gates, side pockets, and swing pricing in certain circumstances. The use of these tools was largely discretionary. AIFMD II moves to a mandatory framework for open-ended AIFs.
The mandatory toolkit
Under Article 16 of the amended directive, AIFMs managing open-ended AIFs must select at least two liquidity management tools from the list set out in the new Annex V to the directive. The tools on the list include redemption gates, notice periods, redemption fees, swing pricing, anti-dilution levies, side pockets, and suspensions of redemptions.
The selection of tools is not a one-time exercise. The AIFM must document its rationale for selecting the tools it has chosen, establish policies and procedures for when and how each tool will be activated, and review the selection periodically to ensure it remains appropriate for the fund’s strategy and investor profile.
Activation policies
The requirement that an AIFM have documented activation policies for each tool it has selected is the element most likely to generate compliance gaps. Many fund managers have liquidity risk frameworks that identify the tools they could use but do not specify, in operational terms, what conditions would trigger activation, who has authority to make the activation decision, what the notification obligations to investors and competent authorities are, and what the exit criteria look like.
Competent authorities reviewing liquidity risk management as part of supervisory assessments are looking for evidence that the activation policy is operational, not aspirational. An activation policy that requires a board decision without specifying the timeline, quorum, or documentation requirements for that decision is unlikely to satisfy the examination standard.
Regulatory technical standards
The European Securities and Markets Authority (ESMA) is developing regulatory technical standards (RTS) that will specify the characteristics of each liquidity management tool and the conditions under which they should be used. Fund managers should note that the RTS will add specificity to the obligations that the directive itself sets out at a higher level of abstraction. Tracking the development and implementation timeline of those RTS is a material compliance obligation in its own right. For an explanation of how RTS interact with the parent directive, see what are regulatory technical standards and why they matter more than the regulation itself.
3. Annex IV reporting: expanded scope and new data fields
The Annex IV reporting regime requires AIFMs to submit detailed information about the AIFs they manage to their home member state competent authority on a regular basis. AIFMD II expands both the scope of the reporting obligation and the granularity of the data that must be reported.
What has changed in the data requirements
The amended directive introduces new reporting requirements in several areas. Fund managers must now report more detailed information about delegation arrangements, including the identity of delegates, the functions delegated, and the jurisdictions involved. The liquidity risk reporting requirements are also expanded, reflecting the new liquidity management tool framework. Leverage calculations, stress testing results, and investor concentration data are subject to enhanced reporting.
For larger AIFMs and funds above certain thresholds, the frequency of reporting has increased. What was previously an annual or semi-annual submission may now require quarterly reporting.
The data quality problem
The practical difficulty with expanded Annex IV reporting is not primarily a legal compliance problem. It is a data management problem. The data fields that AIFMD II adds to the reporting template require information that is often held in multiple systems across the AIFM’s operations: portfolio management systems, investor registers, risk management platforms, and fund accounting systems. Assembling that data into the format required for Annex IV submission, at the required frequency, with the quality standards that competent authorities expect, requires a reporting workflow that is systematically integrated rather than manually assembled.
Fund managers that have historically relied on manual processes for Annex IV reporting should assess whether those processes can support the expanded scope at higher frequency. The risk of data quality failures in regulatory submissions is reputational as well as regulatory. Competent authorities treat submission errors as evidence of operational weakness, not merely administrative oversight.
National implementation variations
Annex IV reporting is submitted to national competent authorities, and the detailed implementation of the reporting requirements has varied across member states. Fund managers operating across multiple jurisdictions, or funds distributed into multiple markets, should verify the specific requirements of each relevant competent authority rather than assuming that a single reporting approach will satisfy all jurisdictions. The European Supervisory Authorities publish convergence guidance, but national variation remains a practical reality.
4. The loan origination regime: a new framework for a growing asset class
The most structurally significant addition in AIFMD II is the introduction of a dedicated framework for loan-originating AIFs. Under the original directive, AIFs that originated loans operated without a specific regulatory framework tailored to their activities. AIFMD II remedies this by introducing requirements that apply specifically to AIFs whose investment strategy involves the direct origination of loans.
Scope: which funds are affected
A loan-originating AIF is defined under the amended directive as an AIF whose investment strategy is primarily to originate loans. The definition is intended to capture funds where loan origination is the core activity rather than a peripheral or incidental element of a broader strategy. However, the precise boundary of the definition, and how it applies to funds that combine loan origination with other strategies, is an area where legal analysis of the national implementing legislation is necessary. The scope question is not purely academic: funds that fall within the definition are subject to requirements that do not apply to other AIFs.
The closed-ended requirement
One of the most significant requirements for loan-originating AIFs is that they must generally be constituted as closed-ended funds. The rationale is that loan portfolios are inherently illiquid assets, and open-ended structures that offer redemption rights are structurally mismatched with the underlying asset class. The closed-ended requirement reflects a deliberate policy choice to reduce liquidity mismatch risk in the loan fund sector.
There is a limited exemption for open-ended loan-originating AIFs, but it is subject to conditions including a demonstrated ability to manage liquidity risk in a manner consistent with the fund’s redemption policy. Funds seeking to maintain an open-ended structure in this category should expect enhanced scrutiny of their liquidity risk management frameworks.
Concentration limits and retention requirements
AIFMD II introduces concentration limits for loan-originating AIFs. A loan-originating AIF may not originate loans to a single borrower in excess of prescribed limits relative to the fund’s capital. The purpose is to prevent excessive concentration of credit risk at the fund level.
There is also a loan retention requirement. AIFMs managing loan-originating AIFs must retain a portion of each originated loan on the fund’s balance sheet for a specified period. This requirement is designed to align the interests of the fund manager with those of investors by ensuring that the AIFM retains skin in the game rather than originating loans purely for distribution.
What new compliance documentation is required
Fund managers operating or establishing loan-originating AIFs need to document their compliance with the new framework across several dimensions. The documentation requirements include: a credit risk policy that reflects the concentration limits and retention requirements, governance records demonstrating that investment decisions are made within the constraints of the framework, disclosure to investors about the fund’s loan origination activities and the associated risks, and conflict of interest policies that address the specific conflict risks arising from loan origination.
The compliance posture question
AIFMD II does not introduce entirely new categories of risk. Delegation, liquidity, reporting, and credit risk were all within the original AIFMD framework. What it does is raise the evidentiary standard. The question competent authorities are now asking is not whether the fund manager has policies in the relevant areas but whether those policies are operational, documented, reviewed, and capable of surviving a substantive supervisory examination.
The fund managers most exposed are those that treated AIFMD II implementation as a documentation update rather than an operational change. A delegation policy that has been updated to reference the new substance requirements but has not been accompanied by a review of actual staffing levels and oversight processes is a compliance document, not a compliance programme. The same logic applies to liquidity management tool selection, Annex IV reporting workflows, and loan origination governance.
The transposition deadline has passed. The period of regulatory tolerance that sometimes accompanies the early implementation of a new framework is brief. Competent authorities across the EU are now examining AIFMs against the amended requirements. The time for gap assessment is now, not at the next supervisory review.
For teams tracking the broader regulatory environment in which AIFMD II sits, including the interaction with DORA’s operational resilience requirements and SFDR’s disclosure obligations, what regulatory horizon scanning actually means for compliance teams covers how to structure continuous monitoring as an operational function rather than a reactive exercise.
Forseti monitors AIFMD II regulatory developments and related technical standards continuously, including ESMA’s liquidity management tool RTS as they develop, anchored to verified official sources. Start for free.