Revision of the AIFMD: extra work for lawyers, improvements for investors

The Directive on the Management of Alternative Investment Funds (AIFMD – Directive 2011/61/EU) came into force in Germany in 2013 with the AIFM Implementation Act, bringing significant reforms to German investment law – especially through the comprehensive regulation of the previously largely unregulated “grey” capital market.

After more than ten years, the European Parliament and the Council passed the AIFMD Amendment Directive, known as AIFMD II, in February 2024. “The introduction of harmonized rules and requirements for risk management, investor protection, and leverage, in line with existing regulations in Germany, is an important step towards promoting a stable and sustainable financial market in the EU,” says Dr. Oliver Decker, attorney, partner, Head of Financial Services/Legal, EU Head of Regulatory, Banking & Finance/Legal at Grant Thornton Law Firm and member of the Supervisory Board at Super Global.

Key Innovations for Credit Funds
AIFMD II brings significant changes for credit-granting funds. Management companies that manage such AIFs can no longer pursue “originate to distribute” strategies, where loans are primarily granted for the sale of credit risks on the secondary market.

Additionally, AIFMD II introduces specific requirements for specialized credit funds, which are primarily based on lending. These funds should generally be structured as closed-end funds unless the management company can demonstrate an adequate liquidity management system for an open AIF.

AIFMD II extends the existing regulations on liquidity management in the AIFMD. AIFMs managing open AIFs must select at least two suitable liquidity management tools from Annex V of AIFMD II. These tools should align with the strategy, liquidity profile, and redemption policy of the AIF. Funds classified as money market funds only need to select one tool from Annex V of AIFMD II.

AIFMs must develop detailed procedures for using all tools and report these to the national authorities. They must also notify the regulatory authority of their home country when activating or deactivating liquidity management tools. In view of the increasing default of loans (NPLs) and the failures of risk management by individual market participants, the European regulator is setting concrete requirements for the AIFM for the first time.

The new requirements regarding liquidity management tools do not represent a novelty for German capital management companies, as comparable requirements have already been firmly established for years through Circular 01/2017 (WA) – Minimum Requirements for the Risk Management of Capital Management Companies (KAMaRisk) in Germany. In this respect, German capital management companies are well prepared to meet the requirements of AIFMD II. Additionally, a specification of risk management requirements to protect investors, which in other member states received only very vague contours, is made.

Through “Gold Plating,” Germany has achieved a high standard in regulation for years. The consistent implementation and further development of regulatory frameworks underline the sustainability and security of the German credit fund market and strengthen investor confidence in the stability and transparency of local fund structures.

With the introduction of AIFMD II, this is expected to apply at least similarly for EU AIFs. Moreover, a European passport for credit funds is also being created, enabling these funds to operate cross-border within the EU. It remains to be seen whether the still very different banking regulation exemptions in individual member states, particularly in France, Italy, and Austria, will unimpededly enable credit granting by credit funds to borrowers in their countries.