The Alternative Investment Fund Managers Directive (“AIFMD”) reshaped the European asset management landscape when it was first introduced in 2011. Its framework brought consistency to how alternative funds were managed, marketed, and supervised across the European Union. Now, the European Commission has adopted a revised framework, AIFMD II, which is expected to take effect in 2026.
For both EU and non-EU managers, these changes will have far-reaching implications. Those who prepare early will be best positioned to maintain investor confidence and regulatory compliance.
What AIFMD II introduces
The new directive focuses on closing gaps identified in the original framework while reinforcing investor protection and market stability. Key changes include:
- Delegation: Regulators will impose stricter oversight on delegation arrangements. Managers must demonstrate that decision-making substance remains within the EU and provide detailed reporting on delegation to non-EU entities.
- Loan origination funds: New rules will apply to alternative investment funds engaged in lending activities. These cover leverage limits, risk retention, and diversification requirements.
- Liquidity management: AIFMs will be required to make additional liquidity management tools available, ensuring that funds can respond more effectively to market stress.
- Alignment with UCITS: The directive brings certain UCITS requirements in line with AIFMD, particularly in areas such as delegation and liquidity, to ensure consistent treatment across fund types.
- Annex IV reporting: Non-EU managers marketing in the EU will face extended Annex IV reporting obligations, increasing transparency but also compliance complexity.
Why managers need to prepare early
Waiting until 2026 to address these requirements is risky. Regulators are already signalling closer scrutiny of governance, delegation, and cross-border structures. Delays in preparation could expose managers to:
- Operational disruption: Firms that fail to adapt may struggle to continue marketing into the EU
- Regulatory penalties: Non-compliance may attract fines or restrictions on marketing activity.
- Reputational damage: Investors increasingly view regulatory preparedness as a signal of governance quality. Falling behind competitors could undermine capital raising efforts.
Third-party ManCos and AIFMs as a solution
For managers without significant EU presence, third-party management companies (“ManCos”) and alternative investment fund managers (“AIFMs”) offer a practical solution. These providers already have the substance, regulatory expertise, and infrastructure required to comply with AIFMD II.
By partnering with the right authorised ManCo or AIFM, non-EU managers can:
- Maintain EU market access without building their own local substance from scratch
- Delegate portfolio management within a compliant framework
- Access established risk management, compliance, and reporting systems
- Benefit from cross-border marketing passports under UCITS and AIFMD
- Develop products with a deep understanding of regulatory change and the spirit of regulation
This model was once primarily considered an option for mid-market and emerging managers, but as complexity and regulatory burden have increased, the profile of managers seeking local compliance expertise has also changed.
Today outsourcing fund management is a core strategy for all managers, be that a new spin out launching with $100 Million or an established multi-jurisdictional manager with AUMs in the $20-30Billion range. Many large asset managers are also adopting third-party solutions to reduce fixed costs whilst remaining agile in product development whilst ensuring regulatory compliance and best practise.[LM1]regulatory compliance and best practise.
The investor perspective
Institutional investors are highly attuned to governance and regulatory standards. Managers that demonstrate readiness are more likely to inspire investor confidence. Conversely, those who appear under-prepared may encounter greater due diligence hurdles, particularly in capital raising from European pension funds, insurers, and sovereign wealth funds.
Building a compliant operating model
The most effective preparation will be proactive rather than reactive. This means:
- Reviewing current delegation structures to ensure alignment with expected requirements
- Evaluating fund documentation to incorporate new liquidity and reporting obligations
- Assessing whether existing operating models provide sufficient substance in the EU
- Exploring partnerships with third-party ManCos or AIFMs where appropriate
Preparing for 2026 and beyond
AIFMD II is not just a regulatory update, it is part of a wider trend towards greater oversight and harmonisation in European fund regulation. Managers that act now will not only reduce compliance risk but also strengthen their market position.
Download our guide, European fund strategies: ManCo solution for structuring and managing European funds, for detailed analysis of AIFMD II and practical steps to prepare for 2026.
