03/02/2026
Briefing

AIFMD II[1] introduces significant changes for alternative investment funds (“AIFs”) that originate loans and their managers (“AIFMs”), including new rules across the EU on concentration and leverage limits, borrower restrictions, and policy requirements. EU member states have until 16 April 2026 to implement these changes into local law.

This briefing outlines the main changes, actions required, and timelines for compliance. It focuses on the steps that AIFs authorised by the Central Bank of Ireland and subject to the existing domestic Irish regulatory regime should take to align with the new EU harmonised regime.

Scope

For the purposes of this briefing the following terms are defined:

  • “loan origination” or “originating a loan” means the granting of a loan: (i) directly by an AIF as the original lender; or (ii) indirectly through a third party or special purpose vehicle which originates a loan for or on behalf of the AIF, or for or on behalf of an AIFM in respect of the AIF, where the AIFM or AIF is involved in structuring the loan, or defining or pre-agreeing its characteristics, prior to gaining exposure to the loan.
  • A “loan-originating AIF” means 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.

It should be considered if the activities of an AIF’s investments could be caught by limb (ii) of the definition of  “loan origination” or “originating a loan” in light of the reference to “indirectly through a third party or special purpose vehicle which originates a loan for or on behalf of the AIF, or for or on behalf of an AIFM in respect of the AIF”.

The key aspects of the AIFMD II loan origination rules that should be considered by AIFMs include the following:

Concentration limits

Review the fund offering document and, if determined appropriate, remove any more restrictive concentration limits than provided for in AIFMD II. For example, for Irish loan-originating AIFs, the 25% single borrower or group concentration limit can be removed to provide for the more flexible AIFMD II limit of 20% in respect of a single borrower that is a financial undertaking, other AIF or UCITS.

AIFMD II Requirement
20% concentration limit to a single borrower for: (i) financial undertakings[2]; (ii) other AIFs; and (iii) UCITS. The concentration limit may not apply for a ramp-up period of up to 24 months from first subscription.

Leverage limits

Review the leverage limits provided for in the offering document for loan-originating AIFs and amend any current maximum leverage limits to apply the AIFMD II limits using the “commitment approach” method of calculation (open-ended AIF: 175% of NAV, closed-ended AIF: 300%).

For example, Irish loan-originating AIFs are currently subject to a leverage limit of gross assets of more than 200% of net asset value which, if determined appropriate, can now be changed to the AIFMD II limits.

AIFMD II Requirement
Open-ended AIF: 175%
Closed-ended AIF: 300%.

Excludes borrowing arrangements covered by capital commitments. Expressed as the ratio between the exposure of the AIF, calculated according to the commitment method and its net asset value.  

Note: Applicable only to “loan-originating AIFs” as defined

Prohibited borrowers

Review the offering documents for AIFs that originate loans and include the list of prohibited borrowers. The current Central Bank AIF Rulebook list of prohibited borrowers is more extensive than that set out in AIFMD II and so the offering document for an Irish loan-originating AIF will need to be amended.

AIFMD II Requirement
The AIF is not permitted to grant loans to:

a) the AIFM or the staff of that AIFM
b) its depositary and delegated entities
c) the entity to which the AIFM has delegated functions e.g. investment manager
d) a group entity of the AIFM unless it solely finances borrowers that are not (a) –(c) 

A European Union member state may prohibit AIFs that originate loans from granting loans to consumers as defined in Article 3, point (a), of Directive 2008/48/EC of the European Parliament and of the Council in its territory and may prohibit AIFs from servicing credits granted to such consumers in its territory.

Policies and procedures

Where AIFs managed by AIFMs originate loans, an AIFM level loan origination policies, procedures and processes must be put in place to address the AIFMD II requirements. Existing Irish loan origination fund policies and procedures apply at the level of the fund whereas AIFMD II places the obligation to adopt and implement a policy on the AIFM.

AIFMD II Requirement
Implement effective policies, procedures and processes, for the granting of loans, assessing the credit risk and for administering and monitoring their credit portfolio.

Permitted activities

Remove existing more restrictive requirements set out in the offering documents on the activities of an AIF that originates loans. Under the current Central Bank loan origination fund rules, Irish loan-originating AIFs must limit their operations to: (i) issuing loans, (ii) participating in loans, (iii) investment in debt / credit instruments, and (iv) participating in lending and operations relating thereto, including investing in debt and equity securities of entities or groups to which the AIF lends or which are held for treasury, cash management or hedging purposes. There are further specific rules relating to acquiring loans from credit institutions. These rules will no longer apply when AIFMD II is implemented.

Distributions

Amend the distribution policy of the loan-originating AIF in the offering document where current more restrictive rules apply. Under the current Central Bank loan-originating fund rules, distributions during the life of an Irish loan-originating AIF are only permitted where there is unencumbered cash or liquid assets. This requirement will fall away with the implementation of AIFMD II, although AIFMs will need to continue to ensure that it applies its liquidity risk management framework to the relevant AIF.

Retention

Consider the investment portfolio of an AIF that originates loans to determine if the portfolio will be impacted by the retention requirement and if one of the exceptions may apply.

The current requirement in the Central Bank AIF rulebook provides that where a loan is purchased from a credit institution other than by way of an offer to multiple parties and on an arm’s length basis and the credit institution  (i) retains an exposure correlated with the performance of the loan, and/or (ii) provides  administration, credit assessment or credit monitoring service in relation to the loan, the credit institution  must retain at least 5% of the nominal value of the loan. In contrast, AIFMD II requires AIFs to retain an economic interest of 5% of the notional value of any loan they originate and sell, with the retention held either until loan maturity (for loans under 8 years) or for at least 8 years for longer‑dated loans.  Exceptions allow a fund to dispose of a loan in full in cases such as where the sale is driven by the liquidation of the fund, there is a deterioration in the borrower’s solvency, or the sale is necessary to implement the investment strategy of the AIF.

AIFMD II Requirement
Subject to certain exceptions, AIFs must retain 5% of the notional value of each loan it has originated and subsequently transfers to a third party for 8 years or until maturity (with respect to loans with a term shorter than 8 years).

Prohibition on “originate to distribute” strategies

Confirm that the strategy that an AIF employs is not an originate to distribute strategy, i.e., a strategy to originate loans with the sole purpose of transferring those loans or exposures to third parties.

Closed-ended/open-ended

If the AIF is a “loan-originating AIF”, consider if the AIF will remain closed-ended. Under the current Central Bank loan origination fund rules, loan-originating AIFs must be closed-ended but this will change upon the implementation of AIFMD II.

Note: The AIFMD II closed-ended/open-ended requirements only apply to “loan-originating AIFs” as defined above.

AIFMD II Requirement
A loan-originating AIF may be open-ended if the AIFM demonstrates that the AIF’s liquidity risk management system is compatible with its investment strategy and redemption policy and employs at least two specified liquidity management tools.[3]

Periodic disclosures

Consider if the composition of the originated loan portfolio is adequately disclosed. AIFMD II expands the list of items to be disclosed to investors periodically (e.g., through the annual report). The existing more extensive annual report disclosure requirements for Irish loan origination funds set out in the Central Bank AIF rulebook will no longer apply.

AIFMD II Requirement
AIFMs shall, for each of the EU AIFs that they manage and for each of the AIFs that they market in the Union, periodically disclose to investors: “(d) the composition of the originated loan portfolio.”

Loan proceeds and administration fees

Review loan portfolio and ensure that the proceeds of the loans, minus any allowable fees for the administration of the loans, shall be attributed to that AIF in full. To review the offering document to ensure that all costs and expenses linked to the administration of loans are clearly disclosed.

AIFMD II Requirement
Where an AIF originates loans, the proceeds of the loans, minus any allowable fees for the administration of the loans, shall be attributed to that AIF in full. All costs and expenses linked to the administration of the loan shall be clearly disclosed in accordance with Article 23 of AIFMD.

AIFM permissions

AIFMD II updates Annex I of AIFMD and sets out additional activities which an AIFM can carry out including “originating loans on behalf of an AIF”. AIFMs managing AIFs that originate loans or are loan-originating AIFs should amend their programmes of activities and make any necessary filings with or notifications to the Central Bank or their member state regulator in this regard.

Transitional period

AIFMD II must be implemented into national law by 16 April 2026, however, AIFMD II grants a transitional period for AIFMs of AIFs already originating loans on or before 15 April 2024. The key transition periods are as follows:

Concentration and leverage limits

  • AIFs established before 15 April 2024 that do not raise additional capital beyond this date: These AIFs are deemed compliant with concentration limits and leverage limits.
  • AIFs established before 15 April 2024 that do raise additional capital beyond this date: These AIFs must comply with the concentration and leverage limits from 16 April 2029. However, until 16 April 2029, AIFMs are not required to lower limits if currently exceeding but must not increase them further.
  • AIFs established after 15 April 2024: These AIFs must comply from with the concentration and leverage limits from 16 April 2026.

Prohibited borrowers, 5% retention, prohibition on “originate to distribute” strategies and loan proceeds and administration fees

In relation to the provisions set out in (3) (Prohibited Borrowers), (7) (5% Retention), (8) (Prohibition on “originate to distribute” strategies) and 11 (Loan Proceeds and Administration Fees) loans originated prior to 15 April 2024 do not need to comply with the AIFMD II rules whereas loans originated after 15 April 2024 must comply from 16 April 2026.

Offering document amendments

To the extent the offering document for an AIF is amended to reflect any of the provisions of AIFMD II described above, the approval of the board of directors of the AIF and the AIFM should be sought. The AIFM should consider if the changes to constitutional or offering documents constitute material changes that would require shareholder approval. If the changes are not material, shareholder notice should be provided.

Should you need any assistance assessing the new loan origination requirements, please do not hesitate to reach out to any of our team.

[1] Directive (EU) 2024/927 amending Directive 2011/61/EU

[2] A ‘financial undertaking’ means any of the following entities:

  • a credit institution, a financial institution or an ancillary banking services undertaking within the meaning of Article 4(1), (5) and (21) of Directive 2006/48/EC Relating to the taking up and pursuit of the business of credit institutions respectively;
  • an insurance undertaking, or a reinsurance undertaking or an insurance holding company within the meaning of Article 212(1)(f) of Solvency II;
  • an investment firm or a financial institution within the meaning of Article 4(1)(1) of Directive 2004/39/EC (MiFID); or
  • a mixed financial holding company within the meaning of Article 2(15) of Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate

[3] Liquidity Management Tools: (i) Suspension of subscriptions, repurchases and redemptions, (ii) Redemption gate, (iii) Extension of notice periods, (iv) Redemption fee, (v) Swing pricing, (vi) Dual pricing, (vi) Anti-dilution levy, (vii) Redemption in kind, (viii) Side pockets. It is not possible to only select (v) and (vi).