Luxembourg AIFM Law Updates: AIFMD II Transposition & Bill of Law 8814

Quick Read:  

• Key Development (AIFMD II): Luxembourg’s Bill of Law 8628 transposed the EU’s AIFMD II directive into national legislation, introducing substantial amendments to the Law of 12 July 2013 on alternative investment fund managers (AIFMs).  

• Loan Origination Regime: Under Bill of Law 8628, loan‑originating alternative investment funds are now subject to a stringent legal framework that includes leverage caps of 175% (open‑ended) and 300% (closed‑ended), a 5% risk retention requirement on secondary sales and a strict prohibition on consumer lending in Luxembourg. 

• Mandatory Liquidity Management Tools (LMTs): Managers of open-ended AIFs must now designate at least two recognised Liquidity Management Tools (LMTs), such as redemption gates, extended notice periods or anti‑dilution levies, to enhance fund liquidity risk management.  

• Strengthened Governance & Oversight: The amendments require that an AIFM’s business be directed by at least two full‑time EU‑domiciled individuals, tightening delegation reporting standards and retaining the local depositary requirement for Luxembourg AIFs.  

• A Parallel Domestic Upgrade: Distinct from the European directive transposition, Luxembourg’s newly proposed Bill of Law 8814 introduces umbrella fund flexibility for unregulated common limited partnerships (SCS) and special limited partnerships (SCSp) that qualify as AIFs, subject to the regulatory condition that they are managed by an EU-established AIFM.  

Why Did Luxembourg Amend the 2013 AIFM Law?

With the advancing regulatory environment for Alternative Investment Funds (AIFs), Luxembourg has modernised its cornerstone AIFM Law of 12 July 2013. This pivotal update was achieved by enacting Bill of Law 8628 to transpose Directive (EU) 2024/927 (AIFMD II).  

Although Luxembourg sticks strictly to the core EU directive text without adding extra local restrictions, Directive (EU) 2024/927 AIFMD II introduces major operational shifts for fund managers. This includes tightened lending criteria and enhanced liquidity protections. Understanding these modifications is critical to ensuring compliance and positioning your fund structures ahead of the 2027 reporting deadlines.  

What Are the Key AIFMD II Amendments (Bill of Law 8628)?

1. A Comprehensive Framework for Loan-Originating AIFs 

The reforms establish harmonised rules surrounding loan origination designed to mitigate systemic risk and protect investors. Key structural updates include:  

• Leverage Caps: Regulatory leverage is now strictly capped at 175% for open-ended AIFs and 300% for closed-ended AIFs.  

• Risk Retention: AIFs must retain at least 5% of the notional value of originated loans sold to third parties.  

• Concentration Limits: A strict 20% exposure threshold applies to single institutional borrowers, such as financial undertakings, UCITS or other AIFs.  

• Consumer Lending Prohibition: Luxembourg has strictly prohibited AIFs from originating loans to retail consumers within its territory.  

2. Mandatory Liquidity Management Tools (LMTs) 

To strengthen liquidity preparedness during periods of market volatility, the updated law requires managers of open‑ended AIFs to select at least two liquidity management tools (LMTs) from the statutory annex into their governance framework. The newly established statutory list includes redemption gates, extended notice periods, redemption fees, swing pricing and dual pricing and anti-dilution levies.  

Meanwhile, Money Market Funds (MMFs) are subject to select only one tool; however, a combination of just swing pricing and dual pricing is not permitted.  

3. Heightened Substance Requirements and Expanded Ancillary Services 

The revised rules require genuine operational substance by mandating that an AIFM’s business be directed by at least two natural persons who are domiciled in the EU and engaged on a full-time basis by the management entity.  

Alongside these substance requirements, the regulatory framework broadens the scope of permitted ancillary services. AIFMs may now offer ancillary services such as human resources, IT and anti-money laundering (AML) to third parties, including intermediate and co-investment vehicles. Such arrangements are permissible provided that robust conflict‑of‑interest controls are in place and actively enforced. 

4. Depositary Continuity and Delegation Oversight 

Despite market anticipation regarding the potential introduction of an EU-wide cross-border depositary passport under AIFMD II, Luxembourg has maintained its statutory local presence mandate. As a result, Luxembourg-domiciled AIFs must continue to appoint a depositary physically established within the jurisdiction.  

Moreover, the regulatory regime governing delegation has been significantly reinforced by requiring AIFMs to provide more detailed reporting on delegated functions. This is to provide regulatory authorities with transparent oversight of core function execution. 

Beyond AIFMD II: A Parallel Domestic Upgrade (Bill of Law 8814)

While AIFMD II drives harmonisation across the EU, Luxembourg is proactively refining its domestic fund toolkit to maintain its status as a leading fund domicile.  

Designed to fill a key regulatory gap, recently introduced Bill of Law 8814 proposes multi‑compartment flexibility for qualifying unregulated Luxembourg limited partnerships SCS and SCSp that qualify as alternative investment funds, provided they are managed by an AIFM established in the EU. This domestic reform significantly enhances the competitiveness of Luxembourg’s unregulated SCS and SCSp vehicles on the global stage and against segregated portfolio structures found in other jurisdictions.  

Ensure Compliance and Optimise Your Luxembourg Fund Structures with Bolder

In response to the shifting regulatory landscape, Bolder provides the tailored governance, compliance and corporate services needed to seamlessly navigate the latest amendments to Luxembourg’s AIFM Law.  

Whether you need to align your operations with AIFMD II requirements or want to leverage the new multi-compartment flexibilities for your SCS and SCSp vehicles, our team can help ensure your AIFs remain resilient, compliant and structurally competitive. To get started, please get in touch with our Bolder experts today.