The Alternative Investment Fund Managers Directive (AIFMD), originally implemented to better regulate alternative investments following the financial crisis of 2008-09, was designed to protect investors.

But, as Loyens & Loeff partner and member of its investment management practice group, Veronica Aroutiunian, points out, “it’s not unexpected that we are looking into an amendment that was already foreseen in the first version” and, despite changes (and questions) in the pipeline on AIFMD2, “this is not a revolution, this is an evolution.”

Aroutiunian, whose focus centres on structuring and formation of alternative investment funds, especially in the real estate sector, has been keeping a close eye on the changes.

Consultative process

At the time of writing, trilogue discussions with the European Commission, the Council of the EU and the European Parliament were underway, with additional discussions anticipated for end-April for the new directive, amending the previous one.

Of course, member states will have time to implement the changes. “It’s good to discuss now, but the changes will come into force not earlier than January 2025--and maybe even that’s too ambitious. Maybe it’s even July 2025,” the partner added.

“A key point that made everyone nervous in the proposal was the delegation because the European Commission initially was looking into imposing a number of, let’s say, qualitative and quantitative qualifications, on delegation of certain functions by the AIFM, especially to third countries, obviously following Brexit,” she explained.

The process has been open and consultative, and Aroutiunian said “luckily” the Commission dropped underlying changes to the existing AIFMD delegation model. Nevertheless, that doesn’t mean that nothing is changing on the delegation side.

“I think the Commission was trying to give more powers to Esma [the European Securities and Markets Authority]; Parliament luckily pushed back. So now where we stand with the current proposal is no fundamental changes to the delegation model--so businesses can breathe. However, a number of requirements imposed on AIFMs, especially third-party AIFMs, will be under the spotlight, which is important for Luxembourg because that’s what we’re selling in our industry.”

Potential impact

At the time of writing, debates were ongoing about delegation and marketing function. Aroutiunian says she hopes it is the Council’s position--“marketing function is not delegation at all, whether or not there is an agreement with the AIFM”--will win out. “But if we go with any marketing and any distribution function is a delegation, that’s huge, potentially in terms of cost--and nerves--for the AIFMs.”

The Loyens & Loeff partner also sees the potential with AIFMD 2 in removing barriers for grand duchy loan-originating funds and to bring legal clarity. “In my view, it’s an opportunity especially for Luxembourg funds and managers [because] the whole spirit of the amendment shows there is a recognition of the importance and value of loan-originating funds for the wider economy which, in my view, is good because in certain member states, that wasn’t really recognised.”