Private debt was already part of the Luxembourg alternative-fund market before AIFMD II. The reform changes the level at which the operating model is tested. Loan origination is no longer addressed only through general risk-management duties and the fund’s own documents. It now sits inside a harmonised AIFMD regime covering underwriting, concentration, leverage, retention and liquidity.

Luxembourg transposed Directive (EU) 2024/927 through the Law of 3 March 2026. The principal framework applies from 16 April 2026.¹ A new Luxembourg fund with a credit strategy should therefore be designed against these rules from its first term sheet.

Which funds are concerned?

The regime distinguishes an AIF that originates loans from an AIF whose strategy makes it a loan-originating AIF. Origination includes direct lending and certain indirect structures where a third party or SPV originates for the fund and the AIFM or fund is involved in structuring or pre-agreeing the loan characteristics.²

Buying an existing loan without involvement in its origination is different. The distinction should be documented because the dedicated leverage and structural rules attach to the loan-originating profile.

The legal wrapper does not answer the question. A plain SCSp and a RAIF can both fall within the framework when their activity meets the definition.

Credit policies and underwriting

An AIFM managing an AIF that originates loans must maintain effective policies, procedures and processes for granting credit. The framework also requires credit-risk assessment, administration and monitoring of the portfolio.²

The policy should cover origination authority, due diligence, approval levels, conflicts, collateral, covenant monitoring, amendments and recovery. It should also identify the data that moves from the investment team into risk management, valuation and reporting.

Delegation does not remove the AIFM’s responsibility. A sponsor or adviser can source and analyse transactions, but the AIFM must retain the oversight and substance required by the mandate.

Borrower concentration

Loans to a single borrower are capped at 20% of fund capital where the borrower is a financial undertaking, an AIF or a UCITS.² The rule includes a ramp-up period tied to the fund documents, generally no later than 24 months after first subscription, with a possible limited extension in exceptional circumstances.

The monitoring should be built into the investment process. A breach identified only during quarterly reporting is too late if a drawdown has already increased the exposure.

Temporary treatment can apply during capital changes and liquidation. The AIFM still needs a documented path back to compliance where a breach is outside its control.

Leverage caps

The leverage of a loan-originating AIF is capped at 175% for an open-ended fund and 300% for a closed-ended fund.² These percentages use the commitment method and exclude borrowing arrangements fully covered by contractual capital commitments from investors.

The cap affects the fund model, subscription facility and asset-level financing. Leverage cannot be reviewed only at the vehicle that signs the loan. The AIFM needs the look-through and data required by the AIFMD calculation.

An AIF whose lending consists solely of shareholder loans benefits from a specific derogation where the aggregate notional value does not exceed 150% of fund capital. The scope should be read narrowly and documented against the portfolio.

Closed-ended by default

A loan-originating AIF is closed-ended by default. An open-ended form is possible only if the AIFM can demonstrate that the liquidity-risk management system is compatible with the strategy and redemption policy.²

This test is operational. Loan maturities, secondary-market depth, credit-line liquidity, redemption frequency and notice periods must work together. A statement in the prospectus does not compensate for assets that cannot fund the promised redemptions.

AIFMD II also requires open-ended AIFs to select at least two appropriate liquidity-management tools from the harmonised list, subject to the detailed exceptions. The CSSF launched the related notification process for the Luxembourg industry in 2026.¹

Originate-to-distribute and retention

The framework prohibits an AIFM from managing an AIF whose strategy is to originate loans solely for transfer to third parties. The fund should invest its capital rather than operate as a temporary warehouse for distribution.²

Where an originated loan is transferred, the AIF generally retains 5% of its notional value. The retention lasts until maturity for loans of up to eight years and for consumer loans, or for at least eight years for longer non-consumer loans, subject to specific permitted disposals.²

The sale file should therefore record the original underwriting, reason for disposal, retained exposure and any reliance on an exception.

Restricted borrowers and conflicts

Loans cannot be granted to the AIFM or its staff, the depositary and its delegates, relevant AIFM delegates or certain group entities, subject to the narrow financial-undertaking exception in the legislation.²

This restriction should be mapped across the full provider and sponsor group. A borrower that appears unrelated at the fund level may fall inside the restriction through the delegation chain.

Fees and expenses linked to loan administration must also be disclosed, and the net loan proceeds belong to the fund. Side arrangements that divert economics away from the AIF require close review.

The transition for existing funds

Funds constituted before 15 April 2024 benefit from transitional provisions. Certain concentration, leverage and closed-ended requirements apply through deemed compliance until 16 April 2029, while existing positions above or below the new limits are constrained from increasing in the manner set out by the directive.²

The transition is not a blanket exemption. Fundraising after the cut-off, new loans and changes to the strategy can affect the analysis. Existing funds need a rule-by-rule review rather than a single grandfathering label.

The Luxembourg implementation file

The operating file should connect the LPA or articles, offering memorandum, AIFM agreement, credit policy, risk limits, valuation policy, liquidity tools and reporting data. Each document should use the same definitions and thresholds.

The reform makes loan origination a governance and data question as much as a legal one. A Luxembourg structure that integrates underwriting, monitoring, accounting and AIFM oversight can use the new framework as a design standard rather than a late compliance exercise.

Footnotes

1. Law of 3 March 2026 transposing Directive (EU) 2024/927 and the CSSF’s March 2026 communication on the requirements applying from 16 April 2026. ↩ ↩²

2. Directive (EU) 2024/927, including the provisions on loan policies, borrower concentration, leverage, closed-ended structures, restricted borrowers, originate-to-distribute strategies, retention and transition. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹