On 12 December 2024, the European Securities and Markets Authority (ESMA) issued a consultation paper on draft regulatory technical standards (RTS) on open-ended loan originating alternative investment funds under the revised Alternative Investment Fund Managers Directive (AIFMD).

Background

On 25 March 2024, Directive (EU) 2024/927 amending the AIFMD and the UCITS IV Directive was published in the Official Journal of the EU. Among other things the Directive amends the AIFMD and UCITS IV Directive in relation to liquidity management, supervisory reporting and depositaries. It also amends the AIFMD in relation to loan-originating alternative investment funds (LO AIFs).

With respect to LO AIFs, Article 16(2)(a) of the revised AIFMD provides that an alternative investment fund manager (AIFM) shall ensure that the LO AIF it manages is closed-ended. However, by way of derogation to this requirement, a LO AIF may be open-ended provided that the AIFM that manages it is able to demonstrate to the competent authorities of the AIFM’s home Member State that the AIF’s liquidity risk management system is compatible with its investment strategy and redemption policy.

In this regard ESMA is mandated, per Article 16(2)(f) of the revised AIFMD, to develop draft RTS to determine the requirements which LO AIFs are to comply with to maintain an open-ended structure. Those requirements shall include: a sound liquidity management system, the availability of liquid assets and stress testing and an appropriate redemption policy having regard to the liquidity profile of LO AIFs.

The consultation paper represents the first stage in the development of the draft RTS per the mandate given to ESMA.

Draft RTS

The draft RTS provide elements and factors of LO AIFs that AIFMs would have to consider when making the demonstration to the competent authorities of their Member States that the LO AIF can maintain an open-ended structure. These same elements and factors would also provide Member State competent authorities with a common framework for their assessment when determining if an LO AIF can derogate from the obligation to be closed-ended and be open-ended.

Annex IV to the consultation paper presents a draft Commission Delegated Regulation containing the draft RTS.

Next steps

The deadline for comments on the consultation is 12 March 2025.

ESMA intends to finalise the draft RTS by Q3/Q4 2025.