The AIFMD II Regulation, which aims at enhancing investor’s protection and removing systemic risks that can be posed by funds, will soon be transposed in
Luxembourg Law. Thereby, various changes will be introduced.

I. Changes in authorization requirements

Additional information must now be disclosed to the CSSF when filling for
authorization, specifically regarding the individuals who exercise de facto control
over the manager's activities, as well as the arrangements made to delegate and
sub-delegate functions to third parties.
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Additionally, it is required that the business of the alternative investment fund
managers (“AIFM”) be conducted by at least two natural persons who are domiciled
in the European Union and either full-time employed or full-time committed to
conducting the business of the AIFM.

II. Amendment of the rules regarding conflicts of interest related to third-party initiators

Where an AIFM manages an alternative investment fund (“AIF”) initiated by a third
party, including where the AIF uses the name of a third-party initiator or the AIFM
appoints a third-party initiator as a delegate, the AIFM must now submit to the CSSF
detailed explanations and evidence of its own compliance with the AIFMD
requirements regarding conflicts of interest.
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The AIFM should also specify the reasonable steps taken to prevent conflicts of
interest arising from its relationship with the third party.

III. Implementation of a loan origination regime

A loan origination regime has been introduced by the AIFMD II Directive, introducing
new obligations to be followed by AIFMs.
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Thereby, where AIFs originate loans, the AIFM must comply with the following rules:

• Implement, maintain and review at least annually its policies, procedures and
  processes for granting loans.
• Beware that the nominal value of loans granted to a single borrower that is a
  financial undertaking, AIF or UCITS does not exceed 20% of the AIF’s capital.
  This obligation should enter into force no later than two years following the
  first subscription for units in the AIF.
• Ensure that AIFs do not lend to their own AIFM, the AIFM’s delegates or staff, the AIFM’s depositary or its delegates, or an entity belonging to same group
  as the manager, except for affiliated financial entities that exclusively finance
  borrowers.
• Ensure that AIFs does not grant loans to consumers in Luxembourg.
• ‍AIFMs are not permitted to manage funds that originate loans or financial
  products for the purpose of selling them to other financial entities or investors.
• As a rule, the AIFS must be closed-ended unless the AIFM is able to prove
  that its liquidity risk management system is compatible with its investment
  strategy and redemption policy. In this case the leverage is capped at 300%.
  As an exception, where the AIFs are open-ended, the leverage is capped at
  175%. In that case, the AIFM ensures that the AIF has chosen at least two of
  the following liquidity management tools:

• Suspension of subscriptions, repurchases and redemptions: temporarily disallowing the subscription, repurchase and redemption of the fund’s units or shares.
• Redemption gate: temporary and partial restriction of the right of unit-holders or shareholders to redeem their units or shares, so that investors can only redeem a certain portion of their units or shares.
• Extension of notice periods: extending the period of notice that unit- holders or shareholders must give to fund managers, beyond a minimum period which is appropriate to the fund, when redeeming their units or shares.
• Redemption fee: fee, within a predetermined range that takes account of the cost of liquidity, that is paid to the fund by unit-holders or shareholders when redeeming units or shares, and that ensures that unit-holders or shareholders who remain in the fund are not unfairly disadvantaged.
• Swing pricing: pre-determined mechanism by which the net asset value of the units or shares of an investment fund is adjusted by the application of a factor (“swing factor”) that reflects the cost of liquidity.
• Dual pricing: pre-determined mechanism by which the subscription, repurchase and redemption prices of the units or shares of an investment fund are set by adjusting the net asset value per unit or share by a factor that reflects the cost of liquidity.
• Anti-dilution levy: fee that is paid to the fund by a unit-holder or shareholder at the time of a subscription, repurchase or redemption of units or shares, that compensates the fund for the cost of liquidity incurred because of the size of that transaction, and that ensures that other unit-holders or shareholders are not unfairly disadvantaged.
• Redemption in kind: transferring assets held by the fund, instead of cash, to meet redemption requests of unit-holders or shareholders.
• Side pockets: separating certain assets, whose economic or legal features have changed significantly or become uncertain due to exceptional circumstances, from the other assets of the fund.

Transitional provisions apply to these loan originating rules to prevent existing
conditions from being affected by the new regulation.
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In that sense, AIFMs managing funds that existed before AIFMD II took effect on 15
April 2024, and that do not raise new capital after this date, will be deemed compliant
with the previous requirements of AIFMD I.
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Preexisting funds that raise capital after the 15 April 2024, will need to comply with
these obligations by 16 April 2029.

VI. The impact in terms of reporting

New information must now be disclosed to investors before they invest, namely (i) a
list of fees, charges, and commissions borne by the investors or the AIFM in relation
with the operations of the AIF, and that are to be allocated to the AIF; (ii) the
composition of the granted loan portfolio; (iii) on an annual basis, a list of fees,
charges and commissions directly or indirectly supported by investors; and (iv) on an
annual basis, any parent company, subsidiary, or special purpose entity used in
connection with the AIF's investments by the manager or on its behalf.

Likewise, additional information is to be reported to the CSSF regarding the
delegation arrangements related to portfolio management or risk management
functions, as well as a list of Member States in which the units or shares of the AIF
are effectively marketed by the manager or by a distributor acting on behalf of that
manager.
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Finally, it should be noted that the CSSF may impose additional reporting
requirements on the manager, in exceptional circumstances or when necessary toensure the stability and integrity of the financial system or to promote sustainable
long-term growth, when requested by the ESMA.