EU: ESMA final report on open-ended loan-originating AIFs

Why should I read this?

ESMA’s Final Report “Draft Regulatory Technical Standards on open-ended loan-originating AIFs under the AIFMD” sets out revised RTS for open-ended loan-originating AIFs (OE LO AIFs) following feedback on ESMA’s December 2024 consultation.

The default rule under AIFMD II is that a loan-originating AIF must be structured as closed-ended. However, AIFMD II provides that deviation from this rule is permissible if certain requirements are met. These requirements include a liquidity management system that minimises liquidity mismatches and is under the supervision of the AIFM’s home Member State’s competent authorities. In the interest of ensuring consistent conditions, AIFMD II requires ESMA to develop RTS  setting out requirements for loan-originating AIFs that want to maintain an open-ended structure.  AIFMD II mandate specifies that the RTS should cover:

• a sound liquidity management system
• the availability of liquid assets and stress testing
• an appropriate redemption policy

The RTS must:

• have regard to the liquidity profile of loan-originating AIFs
• take due account of:
  • the underlying loan exposures
  • the average repayment time of the loans
  • the overall granularity and composition of the portfolios of loan-originating AIFs

What has changed following the consultation?

The main changes that ESMA has made to the RTS following the consultation are:

• Removal of requirement for AIFMs to determine a target appropriate amount of liquid assets
• Reduction in frequency of stress testing
• Clarification relating to pre-authorisation

Removal of requirement for AIFMs to determine a target appropriate amount of liquid assets

Respondents explained that effective liquidity management in OE LO AIFs depends more on the ability to generate liquidity from the loans granted by the funds, rather than constantly holding a fixed amount of liquid assets.  They further noted that a requirement to hold a fixed amount of liquid assets could adversely impact fund performance.

In place of the requirement for a liquid assets target, in the revised RTS, ESMA requires AIFMs to ensure that their OE LO AIFs have sufficient liquidity (which can be generated from the loans held by the AIF) to meet redemption requests.

Reduction in frequency of stress testing

The requirement to carry out liquidity stress testing (LST) has been reduce from quarterly to annually in the revised RTS.

Clarification relating to pre-authorisation

Respondents thought that the wording of requirements for AIFMs that ‘intend to manage’ OE LO AIFs could be interpreted as AIFMs requiring pre-authorisation from their national competent authorities (NCAs).  ESMA has removed this ambiguity by changing the relevant references to ‘AIFMs that manage’, but notes that AIFMD II does not harmonise the authorisation of funds and some OE LO AIFs may be subject to pre-authorisation under national laws.

The RTS

The proposed RTS require an AIFM to satisfy the following conditions before a loan-originating AIF can be structured as an open-ended fund:

Sound liquidity management

In respect of each OE LO AIF it manages an AIFM must be able to demonstrate to its home state NCA that:

• the liquidity risk management systems are compatible with their investment strategy and its redemption policy
• it has selected the appropriate liquidity management tools (LMTs)

Appropriate redemption policy

When determining the appropriateness of the redemption policy of an OE LO AIF an AIFM must consider:

• availability of reliable and up-to-date valuations of the loans and other assets in the portfolio

Liquidity

When considering whether an AIF has sufficient liquidity to comply with redemption requests, an AIFM must consider:

Expected cash flow generated by the loans OE LO AIFs has granted will be considered liquid assets.

Liquidity stress tests

Liquidity stress tests should be conducted at least annually, or more frequency if justified by the AIF’s characteristics.

Assets and liabilities will be stress tested separately.

When conducting a stress test the AIFM should consider:

Ongoing monitoring

AIFMs must monitor the following to ensure that the liquidity management system of the AIFs they manages remain compatible with investment strategies and redemption policies:

Loan-originating AIFs in Ireland

The Central Bank of Ireland (CBI) has confirmed that it plans to implement AIFMD II without gold-plating. An alignment of the current domestic framework with AIFMD II will see a relaxation of certain of its more prescriptive loan-originating qualifying investor AIF (LO-QIAIF) requirements (such as the stricter limits on concentration and borrower exposure). The full extent of the CBI’s proposed amendments to the AIF Rulebook have been published in Consultation Paper 162 and the final feedback statement on this consultation is awaited from the CBI.

Earlier this year, the CBI published an authorisation process note for AIFMs engaging in loan origination.  The origination of loans on behalf of an AIF is an additional AIFM function under AIFMD II and accordingly requires authorisation. Any AIFM undertaking loan origination activity must be authorised to carry out the Annex I loan-origination function and the CBI has implemented a streamlined authorisation process in order to facilitate this.  AIFMs managing AIFs that originate loans must have authorisation in place by 16 April 2026 in order to continue managing those AIFs.  This authorisation requirement applies equally to funds classified as LO-QIAIFs as well as those which engage in loan origination only to a limited extent.

With AIFMD II taking effect and the CBI overhauling its AIF Rulebook, Ireland is set to reinforce its role as a leading European jurisdiction for cross‑border credit.  The revised regime is complex and will influence fund structuring decisions, liquidity management design, leverage policies, and operational governance standards.  The creation of an EU-wide harmonised regime for the management of loan-originating funds will notably allow Irish loan-originating AIFs to raise capital across the EU.  AIFMD II and the overhauled AIF Rulebook will enhance Ireland’s competitiveness for private credit strategies.

Next steps

The draft RTS were submitted to the European Commission for adoption on 21 October 2025.

However, and notwithstanding the implementation of AIFMD II on 16 April 2026, ESMA has included these RTS on the list of non-essential Level 2 acts that will not be adopted by the European Commission before 1 October 2027 at the earliest.

How Eversheds Sutherland can help

Eversheds Sutherland provides integrated support for the structuring, authorisation and ongoing operation of Irish and Luxembourg AIFs, advising on applicable regulatory frameworks including AIFMD, UCITS, MiFID II and CRD IV while supporting a wide range of traditional and alternative asset classes. Our Irish team advises across the full fund and custody chain and has experience with innovative strategies such as cryptocurrencies, music rights, loan funds and cannabis assets, as well as facilitating the first investment by a Chilean fund into an Irish AIF following changes in Chilean law. Our Luxembourg team advises on RAIF, SIF and SCSp structures spanning private equity, real estate, renewable energy, digital assets and fund conversions, alongside tax‑efficient SPV arrangements designed to support underlying investments. Together, our Dublin and Luxembourg practices offer a seamless cross‑border platform for sophisticated AIF structuring and regulatory execution.