The Alternate Investment Fund Managers Directive II (AIFMD II) has come into effect, bringing a range of changes to the rules governing European private credit funds with leverage limits in particular dividing opinion among fund managers. AIFMD II is an updated EU regulatory framework adopted in 2024 and effective from Thursday. It introduces changes to the regulation of European private credit funds that aim to increase investor protection, harmonise rules across jurisdictions, and tighten delegation requirements. “In essence, AIFMD II is an update on AIFMD which was already quite comprehensive,” said Andrew Henderson, partner at Goodwin. “A lot of focus is around the management of credit risk by loan-origination funds, to make the compliance process more bank-like and limit risks for LPs.” One of the most significant changes is the introduction of specific leverage limits for private credit funds. These are capped at 175% of net asset value for open-ended funds and 300% for closed-ended funds. Funds also face new concentration limits and cannot lend more than 20% of their capital to a single borrower. They will be prohibited from originating loans solely to sell them on and will be required to retain a 5% stake in any loan sold to a third party. “It will ease people’s minds at least to a degree from everything that’s been happening with AI,” commented Henderson. “But it’s too early to tell if there will really be an increase in credit fund investments because of it – I think it could help, but it certainly won’t be the driving factor.”
Read the IFR article for more.