AIFMD II should strengthen Ireland’s position as a lending centre for private credit

The scale and strategic importance of private credit in Europe’s financial system today was not anticipated when EU legislators drew up the first directive regarding management of alternative investment funds. As a result, some EU regulators consider that AIFMD did not have appropriate safeguards for a market that has evolved into a core financing channel. Today, private credit sits at the intersection of investor demand, regulatory scrutiny and macro-economic necessity. AIFMD II, and Ireland’s alignment with it, marks the beginning of a materially different supervisory environment for loan originating funds.

The implementation of AIFMD II, combined with the Central Bank of Ireland’s overhaul of its domestic AIF Rulebook, will enhance Ireland’s standing as a European hub for cross border credit. However, the changes are detailed, and the new rules will influence fund structuring, liquidity design, leverage strategy, and operational governance. For managers using Irish funds, whether launching new private credit strategies or updating existing loan originating AIFs (L-QIAIFs), the changes create new product opportunities and new regulatory obligations.

Below, we explore the implications of the reforms for private credit managers considering or already using Irish funds – and set out a series of actions they might consider in response.

Opportunities arising from a harmonised regime

For the first time, AIFMD II creates an EU-wide harmonised regime for management of loan originating funds. The new rules introduce a common definition of ‘loan origination’ capturing both direct lending and loan creation via a special purpose vehicle (SPV) or intermediary where the alternative investment fund manager (AIFM) influences the terms of lending or structure of loans.

Clarifying the scope of the loan origination regime has significant implications for Ireland. It creates a new type of harmonised fund product and allows the existing domestic L-QIAIF – considered to be one of Europe’s most sophisticated loan origination products – to comply with new product rules. This enhances competition and avoids fragmenting the European market for loan originating funds.

Ireland is not expected to ‘gold plate’ AIFMD II – it intends to transpose AIFMD II in a manner that supports cross-border lending. This will make Ireland more attractive as a jurisdiction of choice for loan originating funds. The introduction of a pan-European loan origination product is significant as it enables a loan originating AIF domiciled in Ireland to raise capital throughout the EU, unlocking scalability that private credit managers have long sought.

AIFMD II creates a level playing field from a product and a regulatory perspective. The Irish funds industry expects, nonetheless, to benefit disproportionately from these reforms given Ireland’s established ecosystem and capabilities in servicing private credit.

Reframing credit servicing

AIFMD II does more than define the activities that fall within the scope of a loan originating fund, it fundamentally reframes the supervisory expectations placed on managers of private credit.

AIFMD II recognises loan origination and servicing of securitisation special purpose entities as a regulated activities under AIFMD and distinguishes activities that constitute core or ancillary AIFM functions. For managers managing private credit funds, this brings regulatory clarity and an obligation for AIFMs to assess whether updates are required to their programme of activity.

Ireland is also choosing to exercise AIFMD II derogations in a balanced and commercially pragmatic way. Notably, while Ireland will adopt the expanded list of non-core AIFM services, such as credit servicing, it will retain a prohibition on AIFs originating loans to Irish consumers. This restriction reflects domestic consumer protection policy. Importantly, it does not affect corporate lending, which is the core strategy for private credit funds.

AIFM authorisation requirements

AIFMD II introduces not only a harmonised product framework for L-QIAIFs, but also a material shift in supervisory expectations at the level of the AIFM. The Central Bank of Ireland’s January 2026 authorisation note confirms that any AIFM undertaking loan origination activity must be authorised to perform the Annex I function of originating loans on behalf of an AIF. This applies irrespective of whether the fund is classified as an L-QIAIF or engages in loan origination on a more limited basis.

For AIFMs currently managing L-QIAIFs, the Central Bank will apply a proportionate, streamlined process reflecting the longstanding domestic regime. However, there are no grandfathering provisions for AIFMs. All AIFMs conducting origination must obtain the requisite authorisation by 16 April 2026. As part of the application, AIFMs will be required to outline the L-QIAIFs they manage, the governance, credit assessment and monitoring frameworks in place, and how their policies align with the AIFMD II standards.

These AIFM‑level requirements operate alongside the new L-QIAIF product rules and represent an important operational consideration for private credit managers using Irish structures. They reflect the broader supervisory recalibration accompanying AIFMD II, reinforcing the need for managers to assess their permissions, governance frameworks and operational readiness ahead of implementation.

Facilitating private credit

The Central Bank of Ireland’s proposed reform of the AIF Rulebook, which is being consulted on under Consultation Paper 162, represents the largest overhaul of the AIFMD regime since 2013. Consultation Paper 162 contains a proposal to remove the domestic L-QIAIF rules entirely and replace them with harmonised rules for loan origination under AIFMD II. For managers, this is a profound development as it would eliminate gold plating of Irish rules. It would also simplify the structuring and design of EU loan origination products.

The reforms to the AIF Rulebook are designed not only to align with AIFMD II, but to support Ireland’s strategic policy of enhancing its appeal as a hub for private credit and private assets. Specific proposals that facilitate Irish loan origination funds include:

• permitting non-EU AIFMs such as UK or US AIFMs to manage Irish L-QIAIFs in accordance with AIFMD II loan origination rules;
• removing domestic restrictions such as limitations on initial offer periods; and
• removing the existing restriction on L-QIAIFs acting as a guarantor for third parties thereby facilitating fund financing activity.

These changes reflect international best practice and enable innovative structuring particularly for private credit managers seeking to raise institutional capital in the EU. The implication is clear; Ireland intends to capitalise on AIFMD II, not merely comply with it.

Overhaul of product rules: impact on private credit funds

Leverage and portfolio construction

AIFMD II introduces new leverage levels for loan originating AIFs – i.e. 175% for open-ended fund and 300% for closed-ended loan funds. The new EU rules will require Irish funds to reassess their leverage levels. For private credit funds that rely on subscription lines, net asset value (NAV) facilities, or SPV level leverage, managers will need to analyse how these financing arrangements interact with the new EU-wide exposure definitions.

Liquidity management and open-ended strategies

AIFMD II introduces mandatory liquidity management tools (LMTs) for open-ended AIFs, a significant development for semi-liquid private credit strategies. Consequently, open ended AIFs will require robust liquidity risk management frameworks and will need to be ready to activate LMTs such as redemption controls, swing pricing or anti-dilution levies, in accordance with regulatory technical standards developed by the European Securities and Markets Authority (ESMA) on open-ended loan-originating AIFs.

Ireland’s willingness to align its AIF Rulebook without supplementing the requirements concerning LMTs should allow Irish private credit platforms to adopt these tools in a flexible but compliant manner.

Risk retention and ‘originate to distribute’ limitations

AIFMD II’s prohibition on ‘originate to distribute’ strategies and its 5% risk retention requirement have implications for deal structuring. These rules apply to both loan originating AIFs and any AIF with origination activity, which means that opportunistic credit strategies will need to confirm compliance. For Irish private credit funds that partner with banks, insurers or syndication platforms, this introduces new operational and contractual considerations.

Positioning

Ireland is strategically using AIFMD II to enhance its competitiveness. Under AIFMD II, Ireland is seeking to consolidate its reputation as a leading domicile for loan originating funds. The approach is well-founded as Ireland already has a deep ecosystem for servicing credit funds, extensive expertise with L-QIAIF structures, and a regulatory environment that is engaged and predictable. The creation of a level playing field, while maintaining advantages of sector expertise and deep servicing capabilities, is expected to accelerate the growth of private credit in Ireland.

Practical considerations

The operational steps that private credit managers should prioritise include:

• Review fund documents and investor disclosures: given the new definitions, obligations and EU level harmonisation, managers should begin the process of updating private placement memoranda (PPMs), liquidity management policies, supplements and risk factors;
• Assess the fund’s classification under AIFMD II: clarify whether the strategy falls under ‘loan originating AIF’ or simply an AIF that engages in loan origination. The distinction affects leverage and retention requirements;
• Evaluate leverage strategy and financing structure: ensure that fund-level and SPV-level borrowings will be managed within the new EU parameters;
• Implement revised liquidity frameworks for open-ended strategies: prepare for mandatory LMTs, internal governance processes and operational triggers;
• Monitor the Central Bank’s AIF Rulebook reforms: the Central Bank’s consultation process will materially shape fund design options, especially for private credit strategies targeting institutional European capital.

AIFMD II represents the maturation of the European regulatory framework for private credit, a sector that has evolved from a niche strategy to a systemic component of the non-bank financing market. What is striking is how, through the L-QAIF, Ireland is aligned with the new requirements.

Looking ahead to the end of April 2026, Ireland is preparing to strengthen its competitive footing by modernising its AIF Rulebook and removing domestic rules that supplement AIFMD II; adopting a set of harmonised loan originating funds; and strategic use of AIFMD II derogations.

For sponsors seeking a scalable, institutionally robust platform for originating loans across Europe, Ireland’s alignment with AIFMD II reinforces its status as a leading fund domicile for private credit.