AIFMD II Loan Origination: The Complete Compliance Guide for Private Credit Funds (April 2026)

From 16 April 2026, the AIFMD II loan origination framework becomes mandatory across EU member states. Directive (EU) 2024/927 — which entered into force on 16 April 2024 and must be transposed by the same date in 2026 — introduces the first harmonised EU-level regime for alternative investment funds that originate loans. Until now, private credit funds, direct lending funds, and other loan-originating AIFs operated under a patchwork of national rules that varied significantly between Luxembourg, Ireland, Germany, France, and the Netherlands.

The new framework introduces two-tier scope tests, leverage limits, a 20% single-borrower concentration cap for certain borrowers, a 5% risk retention requirement on loan sales, a prohibition on originate-to-distribute strategies, and mandatory closed-ended structures for loan-originating AIFs — with limited exceptions.

With the transposition deadline weeks away, this guide provides a comprehensive analysis of who is in scope, what obligations apply, and what the transitional provisions mean for existing funds.

Scope: Two Tiers of Application

The AIFMD II loan origination framework does not apply uniformly. There are two distinct tiers of requirements based on the extent to which a fund engages in loan origination.

Tier 1: Any AIF That Originates Any Loan

The baseline requirements apply to any AIF that originates loans — regardless of whether lending is the fund's primary strategy. This means that a multi-strategy fund that occasionally originates a single loan falls within the baseline framework.

Definition of loan origination: The origination of a loan by an AIF means:

• Direct origination: The AIF acts as the original lender granting the loan
• Indirect origination: The AIF gains exposure to a loan through a third party or special purpose vehicle (SPV) where the AIFM or the AIF was involved in structuring the loan or defining or pre-agreeing its characteristics before the AIF acquired exposure

The indirect origination definition captures the practice of using originating SPVs or warehouse vehicles — if the AIFM was involved in loan design upstream, the AIF's subsequent acquisition of that loan counts as origination for regulatory purposes.

Tier 2: "Loan-Originating AIF" (LOF)

The stricter requirements apply to loan-originating AIFs (LOFs), defined as AIFs where:

• The investment strategy is mainly loan origination, OR
• Originated loans represent ≥ 50% of NAV

LOF status triggers the leverage limits, the mandatory closed-ended structure requirement, and additional regulatory conditions discussed below.

Baseline Requirements (All AIFs Originating Loans)

Policies and Procedures

AIFMs managing AIFs that originate any loans must implement and maintain documented policies and procedures covering:

• Credit risk assessment: Criteria for evaluating borrower creditworthiness and loan terms
• Portfolio administration: Processes for managing the loan portfolio, including documentation and record-keeping
• Monitoring: Ongoing monitoring of credit risk, borrower performance, and portfolio quality
• These policies must be reviewed and updated at least annually

Prohibited Borrowers

Loans may not be originated to:

• The AIFM itself
• The AIFM's staff (employees, partners, directors)
• The depositary of the AIF
• Any delegate of the AIFM
• Any entity within the AIFM's corporate group

This prohibition eliminates conflicts of interest inherent in related-party lending. Limited carve-outs exist for loans between financial undertakings within a group, provided the borrower qualifies under specific conditions.

Loan Proceeds Allocation

The full net proceeds of any loan (after deducting allowable administrative fees) must be attributed to the AIF as original lender. This prevents fee stripping arrangements where loan economics are captured by entities outside the AIF.

Originate-to-Distribute Prohibition

AIFMs may not manage an AIF whose investment strategy is solely to originate loans with the intent to immediately transfer them to third parties. This prohibition targets pure warehouse or origination vehicles that create loans for immediate securitisation or sale without any holding period.

Note the qualifier: "solely." An AIF may originate and subsequently sell loans — the prohibition applies only where the entire strategy is to originate for immediate transfer with no genuine investment intent.

Additional Requirements for Loan-Originating AIFs (LOFs)

Mandatory Closed-Ended Structure

LOFs must be closed-ended as a matter of principle. The rationale is the liquidity mismatch: originated loans are inherently illiquid assets, and offering redemption rights to investors creates systemic risk where redemptions cannot be funded without distressed loan sales.

Exception — open-ended LOFs: An open-ended LOF is permitted only where the AIFM can demonstrate to its competent authority that the fund's liquidity risk management system is compatible with its investment strategy and redemption policy. The specific conditions for this demonstration are to be defined by ESMA RTS — but those RTS are not expected to be formally adopted before 1 October 2027.

For the period between 16 April 2026 and the adoption of the ESMA RTS, AIFMs wishing to operate open-ended LOFs must work with their national competent authority on a case-by-case basis.

Leverage Limits

LOFs face hard leverage caps under the commitment method:

LOF Structure	Maximum Leverage
Open-ended LOF	175% of NAV
Closed-ended LOF	300% of NAV

These limits apply to the full leverage of the fund, including borrowings, derivatives exposure, and other leverage-creating instruments. Shareholder loans (see below) are subject to a separate regime.

20% Single-Borrower Concentration Limit

LOFs face a concentration restriction: loans to a single borrower that is:

• A financial undertaking (bank, investment firm, other regulated financial entity)
• Another AIF
• A UCITS

cannot exceed 20% of the fund's capital (subscribed capital and committed capital not yet called).

Critical carve-out: This 20% limit does not apply to loans to private companies (non-financial corporates, SMEs, individuals). Private credit funds lending to operating companies are not constrained by the concentration limit — it is specifically designed to prevent exposure concentration in other financial intermediaries.

Ramp-up period: LOFs have a 24-month period from first subscription to build up their portfolio before the 20% limit applies. This period can be extended by up to 12 months where the AIFM demonstrates to the competent authority that the fund has not yet been able to deploy capital within the limit despite reasonable efforts.

5% Risk Retention on Loan Sales

When an LOF sells or transfers an originated loan to a third party, it must retain a minimum 5% net economic interest in that loan. This retention must be maintained:

• Until maturity of the loan, OR
• For a minimum of 8 years for loans with a maturity exceeding 8 years

The 5% retention requirement applies on a loan-by-loan basis at the time of transfer. Four specific exemptions apply:

1. Fund liquidation: Retention not required where the AIF is in liquidation
2. Sanctions compliance: Retention not required where maintaining the exposure would violate applicable sanctions
3. Investment strategy optimisation: Retention may be released where documented reasons support a portfolio optimisation decision
4. Credit deterioration: Retention may be released where the specific loan has experienced documented credit deterioration

Shareholder Loans: Relaxed Regime

A specific relaxed regime applies to AIFs that only originate shareholder loans — defined as loans to a company in which the AIF holds at least a 5% equity or voting rights interest and that are not independently transferable on the secondary market.

Where an AIF only originates shareholder loans AND the aggregate value of those loans does not exceed 150% of the AIF's capital, the leverage limits and policies requirements are significantly reduced. This carve-out is designed to accommodate venture capital and private equity funds that make incidental loans to their portfolio companies alongside equity investments.

Prohibited Transactions Involving AIFMD-Scope Entities

The regulation introduces specific restrictions on transactions between loan-originating AIFs and other regulated entities to prevent regulatory arbitrage:

• No loans to other AIFs under management: An AIFM managing multiple AIFs cannot structure loans from one AIF to another AIF it manages — creating circular leverage
• No loans to the depositary or its group: Prevents conflicts of interest in the depositary oversight function
• No loans to delegates: Prevents fee recycling through related-party lending

Transitional Provisions and Grandfathering

The AIFMD II loan origination requirements include carefully structured transitional provisions that give existing funds time to adapt:

AIFs Constituted Before 15 April 2024

Situation	Treatment
Constituted before 15 April 2024, not raising new capital after that date	Permanently exempt from all new loan origination requirements
Constituted before 15 April 2024, raising new capital after 15 April 2024	Must comply by 16 April 2029; during interim, cannot increase leverage or concentration above current levels but need not reduce them

The "raising new capital" test uses 15 April 2024 (the day before AIFMD II's entry into force) as the reference date. AIFs in final close before that date with no subsequent capital raises are permanently grandfathered.

Loans Originated Before 15 April 2024

For all AIFs, loans originated before 15 April 2024 are exempt from:

• The policies and procedures requirements
• The diversification and concentration requirements
• The prohibited borrower restrictions
• The 5% risk retention requirement
• The originate-to-distribute prohibition

These legacy loans can continue to be held and managed under pre-AIFMD II arrangements.

Early Opt-In

AIFMs may voluntarily notify their competent authority to apply the new AIFMD II loan origination regime before the 16 April 2026 transposition deadline. Early opt-in gives funds time to adapt operations and market themselves as compliant with the new framework.

Jurisdiction-by-Jurisdiction Implementation

While the framework is harmonised at EU level, national transposition choices affect key aspects of implementation:

Jurisdiction	Key Implementation Notes
Luxembourg	Bill n°8628 in progress; consumer loans excluded from AIF loan origination scope; no additional gold-plating expected; CSSF MiCAR CASP also progressing in parallel
Germany	Extends "lending privilege" to AIF-controlled SPVs — a practical accommodation for common German structuring approaches; BaFin supervision
Ireland	Previous gold-plated national rules being removed; streamlined to minimum AIFMD II standard; Central Bank of Ireland
France	Restricts loans to consumers; may limit access for non-EU AIFs in some respects; AMF supervision
Netherlands	Full transposition expected; AFM supervision; no additional gold-plating signalled
UK	Not implementing AIFMD II; UK AIFMD regime under separate FCA review — UK fund managers operating in the EU must comply with EU rules regardless

The transposition tracker for AIFMD II country-by-country status is available at our AIFMD II Transposition Tracker.

Impact on Fund Structures

Closed-Ended Direct Lending Funds

The mandatory closed-ended structure for LOFs aligns with the existing practice of most direct lending and private credit funds, which are already structured as closed-ended vehicles with fixed investment periods and defined maturities. These funds are least disrupted by the new rules.

Key actions for 16 April 2026:

• Review and update the credit risk assessment and monitoring policies
• Confirm leverage levels remain within the 300% commitment method cap
• Review loan portfolio for any borrowers in prohibited categories
• Confirm 5% retention arrangements are in place for any secondary loan sales

Open-Ended Credit Funds

Open-ended funds with loan origination strategies face the most challenging transition. If the fund qualifies as an LOF (≥50% NAV in originated loans or main strategy), it must either:

1. Demonstrate to its NCA that its liquidity risk management is compatible with the open-ended structure (pending ESMA RTS — no formal framework until October 2027)
2. Convert to a closed-ended structure
3. Reduce originated loan exposure below the 50% NAV threshold to avoid LOF classification

Multi-Strategy Funds with Incidental Loan Origination

Multi-strategy funds that originate loans incidentally — below the 50% NAV threshold and as a non-primary strategy — fall under the baseline requirements only. These funds need policies and procedures but are not subject to the leverage caps, concentration limits, or mandatory closed-ended structure.

Private Equity and Venture Capital Funds

Funds making shareholder loans alongside equity investments can potentially benefit from the relaxed shareholder loan regime, provided the loans are to entities where the AIF holds ≥5% equity/voting rights and the total loans do not exceed 150% of the fund's capital.

What AIFMs Must Do Before 16 April 2026

For All AIFMs with Loan-Originating Funds

1. Scope assessment: Determine which managed AIFs originate loans (directly or indirectly via SPVs)
2. LOF classification: For each loan-originating AIF, determine whether it qualifies as an LOF (≥50% NAV or main strategy)
3. Policy review: Implement or update credit risk assessment, portfolio administration, and monitoring policies
4. Borrower review: Audit current loan portfolios for prohibited borrowers and rectify before the transposition date
5. Grandfathering analysis: Document which AIFs and which loans qualify for transitional exemptions

For LOF Managers Specifically

6. Leverage review: Calculate current leverage under the commitment method against the applicable cap (175% or 300%)
7. Concentration review: Assess loan exposures to financial undertakings, other AIFs, and UCITS against the 20% cap
8. Structure confirmation: Confirm closed-ended structure; if open-ended, engage with NCA on interim approach
9. Retention documentation: Confirm 5% retention arrangements are documented for any secondary loan sales
10. Fund documentation update: Update offering documents, investor reports, and compliance manuals

For Funds with Grandfathered Status

11. Baseline freeze: Confirm current leverage and concentration levels — these cannot be increased above current levels during the transitional period
12. Compliance date planning: Plan for full compliance by 16 April 2029

How financialregulations.eu Can Help

Our platform covers Directive (EU) 2024/927 (AIFMD II) in full — including all loan origination provisions in Article 15 and the recasted AIFMD articles, the ESMA RTS published to date, and the implementing measures in key jurisdictions including Luxembourg, Germany, Ireland, France, and the Netherlands. You can:

• Query specific requirements: Ask about the LOF classification test, the 20% concentration limit, leverage calculations, or retention requirements
• Review fund documents: Upload draft offering memoranda, investment management agreements, or compliance policies for analysis against the AIFMD II loan origination framework
• Cross-reference: Check how AIFMD II loan origination rules interact with AIFMD II liquidity management tool requirements, AIFMD II transposition status, and national implementing rules

Start analysing AIFMD II loan origination requirements - free

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Frequently Asked Questions

What is the AIFMD II loan origination framework?

AIFMD II (Directive (EU) 2024/927) introduces the first harmonised EU-wide framework for alternative investment funds that originate loans. It creates a two-tier regulatory regime: baseline requirements applying to all AIFs that originate any loans (policies, prohibited borrowers, retention on sales) and enhanced requirements for "loan-originating AIFs" (LOFs) defined as funds where loan origination is the main strategy or originated loans represent ≥50% of NAV. LOFs face leverage caps, a mandatory closed-ended structure (with limited exceptions), and a 20% concentration limit for loans to financial undertakings, other AIFs, and UCITS. The framework must be transposed by member states by 16 April 2026.

Does AIFMD II apply to existing private credit funds?

It depends on when the fund was constituted and whether it raises new capital. AIFs constituted before 15 April 2024 that do not raise new capital after that date are permanently exempt. AIFs constituted before 15 April 2024 that do raise new capital after that date must comply by 16 April 2029 (but cannot increase their current leverage or concentration levels in the interim). AIFs constituted on or after 15 April 2024 must comply from 16 April 2026. Loans originated before 15 April 2024 are exempt from the new policies, retention, and concentration requirements regardless of the fund's date of constitution.

What is the leverage limit for loan-originating AIFs?

Under the commitment method, closed-ended LOFs may have leverage up to 300% of NAV. Open-ended LOFs face a tighter cap of 175% of NAV. These limits apply to the total leverage of the fund including borrowings, derivatives, and other leverage-creating instruments. The leverage limits do not apply to AIFs below the LOF threshold (originated loans below 50% of NAV and loan origination is not the main strategy).

Can a loan-originating AIF be open-ended?

In principle, LOFs must be closed-ended. An open-ended structure is permitted only where the AIFM demonstrates to its competent authority that the fund's liquidity risk management is compatible with its investment strategy and redemption policy. The specific conditions for this demonstration are being developed by ESMA in draft RTS, which are not expected to be formally adopted before 1 October 2027. Until those RTS are adopted, AIFMs seeking to operate open-ended LOFs must engage with their national competent authority directly.

What is the 5% risk retention requirement?

When a loan-originating AIF sells or transfers an originated loan to a third party, it must retain a minimum net economic interest of 5% of the notional value of that loan. The retention must be maintained until maturity (or for at least 8 years for longer-dated loans). Four exemptions apply: fund liquidation, sanctions compliance, documented investment strategy optimisation, and documented credit deterioration of the specific loan.

Does the 20% concentration limit apply to loans to operating companies?

No. The 20% single-borrower concentration limit applies only to loans to: financial undertakings (banks, investment firms, other regulated financial entities), other AIFs, and UCITS. Loans to private companies — including non-financial corporates, SMEs, and individuals — are not subject to the 20% cap. This means private credit funds lending to operating businesses are not constrained by the concentration limit on those exposures, which is the most common use case for direct lending funds.