AGEFI Luxembourg - juin 2025

AGEFI Luxembourg 24 Juin 2025 Conseil / RSE T he introductionof theAlter- native Investment FundMa- nagersDirective 2 (AIFMD2) marks a pivotalmoment for alter- native investment fundmanagers (AIFMs) throughout the EU, man- dating a comprehensive overhaul in how funds are governed and managed. Building on its prede- cessor,AIFMD2 aims not only to address evolvingmarket dyna- mics and bolster investor protec- tion but also to stimulate growth and diversificationwithin the al- ternative investment sector. Reflecting years of legislative develop- ments and market feedback, AIFMD2 is updatingtargetedelementsoftheoriginal directivewhichimpactsbothnon-EUand EU AIFMs. These regulatory amend- ments seek to foster a more resilient and transparent alternative investment sector within the EU landscape. Member States shall implement these changes into their local laws by 16 April 2026. This article delves into the significant updates and their implications only onEUAIFMs. The changes ondelegation rules Extension of the Delegation Framework: The delegation rules now encompass all functions inAnnex 1 ofAIFMD, covering additional ancillary services like fund ad- ministration, marketing, fiduciary serv- ices,andMiFID“top-up”activitiessuchas portfoliomanagement,investmentadvice, andcustody.ThisimpliesthatAIFMsdel- egatingnon-coreserviceactivitiestothird- parties will need to assess whether their existingoperationalstafffromthefirstline ofdefensearestillsufficientandadequate to guarantee an effective ongoing super- vision, given the extended scope. Extensionof the informationprovided to NCAs authorization:AIFMD2mandates EUAIFMs toprovide comprehensive in- formation to National Competent Au- thorities (NCAs) on delegation arrangements. This includes details on the delegate’s name, jurisdiction, super- visoryauthority,humanandtechnicalre- sources involved in portfolio and risk management,andspecificsaboutthedel- egation’sscope.Thisadditionaldatatobe provided for NCAs for authorization highlights that the delegation and its oversight are increasingly important top- ics, and NCAs will need to ensure that newly established AIFMs implement suitable delegation arrangements. AnnexIVReportingrequirements:There- porting rules are expanded underArticle 24,obligatingtheinclusionofdetaileddel- egation arrangement information con- cerning portfolio or risk management in Annex IV reports. This covers delegate identification,regulatorystatus,allocated resourceswithintheAIFMtoperformthe day-to-day portfolio management and riskmanagement activities and themon- itoringof thedelegation, the list andade- scription of the delegated activities concerning portfolio management and riskmanagement,thenumberofperiodic due diligence reviews carried out by the AIFM and their dates, as well as a list of issues identified and measures adopted toaddress them. The expansionof the in- formation required in the Annex IV re- porting concerning delegation indicates that NCAs will closely monitor the dele- gationandoversightarrangementsestab- lished by theAIFMs. EUAIFMauthorization and substance requirements AIFMD2 requires that the business of the AIFMmust be conducted by at least two naturalpersonswhoarefirstdomiciledin the EU and second either employed full- timeorcommittedfull-timetoconducting the business of theAIFM. In this context, AIFMs managing AIFs marketedtoretailinvestorsshouldbe“en- couraged” to appoint at least one inde- pendent or non-executive director, where possible under national law. ESMA is mandatedtoconsidertheappropriateness of introducing a binding rule concerning thispoint.Theserequirementsstrengthens governance and oversight withinAIFMs andpotentiallyleadstoenhancedinvestor protection through robust governance structures. Moreover, having non-execu- tivedirectorsbringsindependentperspec- tives to decision-making processes, enhancingmanagementaligningwithin- vestor interests. The introduction of a loan origination regime One of the key changes underAIFMD2 is the introduction of a loan origination framework. TheAIFMD2 introduces sig- nificantchangesregardingtheframework forloanoriginationbyAIFs.Loanorigina- tion is defined as granting loans either di- rectly by anAIF as the original lender or indirectly through third parties or Special Purpose Vehicles on the AIF/AIFM’s be- half, with the involvement of the AIF/AIFM in structuring or defining the loan characteristics. AIFs focused mainly on originating loans or having loans whose notional value represents at least half of their net asset value are considered loan-originating AIFs. Under AIFMD2, loan-originatingAIFsmustimplementro- bust loan origination policies, including procedures for credit risk assessment and portfoliomonitoring. There are concentration limits on lending, restrictingloanstocertainfinancialentities tonot exceed20%of theAIF’s capital. Re- latedparty lending is prohibited,withex- ceptionsforaffiliatesfinancingborrowers, andMemberStateshavetheoptiontoban consumer lending.AIFMs are alsobarred frommanaging funds using an originate- to-distribute strategy, preventing loan origination for resale. Additionally,AIFssellingoriginatedloans on secondary markets must retain 5% of the loan’s notional value, with exceptions during liquidation or regulatory compli- ance. Furthermore, loan-originatingAIFs are expected to be closed-ended unless theycandemonstratecompatibleliquidity risk management, strategy, and redemp- tionpolicies.Thereareleveragelimits,cap- ping open-ended AIFs at 175% and closed-ended AIFs at 300%, calculated using the commitment method. Excep- tions apply for AIFs lending limited to shareholder loans, provided these do not exceed 150%of their capital. Grandfatheringprovisions exist for funds establishedbeforeAIFMD2’senforcement on15April2024,allowingthemtocomply with previous requirements unless they raisenewcapitalafterthisdate,grantinga five-year grace period until 16April 2029. Preexisting loans originated before this date are exempt from new rules regard- ingloanoriginationpolicies,relatedparty lending, originate to distribute, and risk retention.Overall,AIFMswillneedtoad- here to a structured legal framework for loan origination, ensuring compliance with definedpolicies andrigorous credit risk assessment protocols. New concen- tration limits and risk retention require- ments will necessitate careful management of lending practices and risk diversification to protect against ex- cessive exposure. In short, AIFMs will need stronger governance and more comprehensive riskmanagement frame- works to remain compliant. Changes related to liquiditymanagement AIFMD2 expands the existing liquidity management requirements underArticle 16.EUAIFMSmustnowselectatleasttwo liquiditymanagement tools (LMTs) from a prescribed list of nine options—though only eight are available, since the suspen- sion of subscriptions/repurchases/re- demptions applies to allAIFs bydefault. AIFsmust choose at least two of the eight available LMTs, though Money Market Fundsonlyneedtoselectone.Suspension of subscriptions, repurchases, redemp- tions, and the use of side pockets are re- stricted to exceptional situations. Moreover, the AIFMwill be required to implementpoliciesandproceduresforthe activationanddeactivationofanyselected LMT. Prior to activating or deactivating a LMT, the AIFM must notify its NCA within a reasonable timeframe. In exceptional cases, NCAswill be able to require theEUAIFMtoactivateordeacti- vate the suspension of subscriptions, re- purchases and redemptions LMT after consultation with the AIFM. In the same kindof circumstances, ESMAwill be em- poweredtorequestNCAstorequirenon- EUAIFMSmarketingoneormoreAIFsin the EU, aswell as EUAIFMsmanaging a non-EUAIF, to activate or deactivate the suspensionLMT. Withtheadditionalliquiditymanagement requirements, AIFMs will remain the mainresponsiblefortheselection,calibra- tion, activation anddeactivation of LMTs. Thiswillaffectthegovernanceframework forAIFMs, requiring them to incorporate the aforementioned aspects into an LMT policy, supplementing their existing liq- uidity riskmanagement procedures. Newpermissible activities for EUAIFMs AIFMD2 permits AIFMs to engage in loan origination and servicing of Secu- ritization Special Purpose Entity (SSPEs). In Article 6(4), it also expands the list of services authorized forAIFM. AIFMs are now authorized to provide services for benchmark administration and credit servicing. Moreover, with AIFMD2, anAIFMcan nowhold a top- up license for the services of investment advice without needing a portfolio management permission, which was not possible withAIFMD1. With the di- versificationoftheirofferings,AIFMswill be able to expand their operational scope and potentially enhance their revenues opportunities. Changes to the depositary framework AIFMD1mandated that an EUAIF’s de- positary be based in its home member state. AIFMD2 introduces flexibility, al- lowing AIFMs to use depositaries from other member states if local services are lacking and the depositary market is under €50 billion in assets. Third-country depositariesmustbefromjurisdictionsnot on the EUAML or Tax Lists. These new provisions enhance operational options for AIFMs, provided they meet specific conditions and adhere toEUstandards. In conclusion, by refining governance structures, enhancing investor protec- tions, and introducing new frameworks for loan origination, liquidity manage- ment,andpermissibleactivities,AIFMD2 aims to foster amore transparent and re- silient alternative investment sector. The directive requires AIFMs to adopt rigor- ous risk management policies, compre- hensive delegation oversight, and robust governancepractices.While thenewreg- ulations present compliance challenges, theyalsoofferopportunitiesforAIFMsto innovate and expand their roles, poten- tially leading to growth and diversifica- tionwithin the industry. Bertrand PARFAIT, Partner Alexandre GALGAN, Director Francesco D’AVANZO, Manager Deloitte Luxembourg Navigating the new frontier: Understanding the impact of AIFMD2 on EU alternative investment fund managers P wC Luxembourg has just re- leased its 2025 Barometer for the previous year’s “Obser- vatory forManagement Compa- nies*”. This is the tenth edition of the survey results speaking to both the relevance and popularity of this flagship publication dedi- cated to delivering a comprehen- sive and accurate overviewof Luxembourg’sManagement Companies (ManCos) market. Keyhighlights Representative sample Dedicated toprovidingan in-depthanal- ysis of Luxembourg’s Management Companies (ManCos)market, thisyear’s barometer offers a comprehensive overview encompassing UCITS Man- Cos, Alternative Investment Fund Man- agers (AIFMs), and those holding both UCITS and AIFM licences, known as “SuperManCos.” This latest iteration in- volved 72 participants, holding 83% of the ManCo AuM as of December 2024, encompassing 77%of employees. ManCo snapshots Market dynamics, growth trends Despite global challenges, Luxembourg remains an attractive hub reinforcing its positionasthecentreofexcellenceinAsset Management in Europe, having 29% of the regulated European total net assets of UCITSandAIFsdomiciledinthecountry. Luxembourg’s ecosystem sustained its competitiveness and agility with a total AuM exceeding the €5,800 billion mark. LuxembourgManCoshaveseenanotable increase (+12.3% in total) in all liquid and private assets, driven by the evolution of themarket stock.Alternative Investments continued to grow steadily, confirming Luxembourg is the domicile of choice for regulated and unregulated alternative products and for theirAIFM. Substance andgovernance Governance in Luxembourg’s ManCos continues to evolve. Increasing regula- tory requirementshave led toa rise in the number of Conducting Officers and Board members, reflecting the need to demonstrate stronger substance, greater specialisation, and clearer segregationof tasks. The number ofNon-ExecutiveDi- rectors inboards is growing, responding to the increasing demand for indepen- dent oversight. Once again, this year, tax governance remains a key focus with more Conducting Officers appointed to assess procedures affecting the evolving tax landscape. Operating model transformation & digitalisation Digital transformation is accelerating, withsignificant investments indigitalisa- tion and AI as ManCos are leveraging technology to improve operational effi- ciency andmanage real-time risk assess- ment. This edition of the barometer also revealed the continuous increase of branchesandrelatedFTEsabroadofLux- embourg ManCos. These branches pro- pose marketing and fund distribution services among other operational func- tions to support theManCos initiatives. Looking forward This year’s Barometer outlines the long- term evolution of the ManCo industry in Luxembourg, and key trends including digitalisation, theuse ofAI, and the rise of highly specialisedManCos. Laurent Butticè, Management Company Leader,Audit Partner, PwC said: “Facing dual challenges in maintaining competi- tiveness and adapting to regulatory changes, ManCos’ operating models are beingreshaped.Thisstrategicshiftreflects a trend towards insourcingcore functions to optimise the value propositions, while outsourcing operational functions both withinthegroupandthroughthird-party providers to benefit regulatory expertise andoperationalefficiencies.IntheLuxem- bourg ManCos landscape, third-party Mancos continue offering valuable “one- stop-shop”solutions,providingacompre- hensive support and allowing asset managerstofocusoncorecompetencies.” *https://lc.cx/g6wDmV PwC’s Observatory for Management Companies 2025 “ManCos’ operating models are being reshaped”