Personal credit score fund managers are adapting open-ended buildings to keep away from the leverage limits positioned on them by the revised Various Funding Fund Managers Directive (AIFMD).
The revised EU legislation incorporates guidelines for mortgage origination funds for the primary time, which means that personal credit score fund managers might want to adjust to stricter necessities.
Beneath the brand new guidelines, the leverage of closed-ended loan-originating various funding funds will probably be capped at 300 per cent of their web asset worth, whereas open-ended ones will probably be capped at 175 per cent.
Authorized consultants have informed Various Credit score Investor that fund managers are already adapting their open-ended funds to keep away from the leverage restrict.
Learn extra: Revised AIFMD might harmonise European lending
Personal credit score fund managers usually purpose for 200 per cent leverage, so the 175 per cent restrict means they may develop into uncompetitive within the market as they are going to be providing decrease returns to buyers.
Fund managers are presently in talks with legal professionals in regards to the ‘gray space’ of what constitutes an open-ended fund.
Some corporations are changeing to a run-off mannequin slightly than providing redemptions in order that they don’t depend as open-ended, the consultants mentioned.
And a few corporations are shopping for up CLOs and leveraging them in order that they aren’t technically counted as a mortgage origination fund.
The European Parliament voted to replace the AIFMD on 7 February and the textual content of the Directive was then adopted by the European Council later that month, earlier than being revealed within the EU’s official journal. Member states have two years to undertake the foundations in nationwide legal guidelines and funds then have an additional yr to fulfill the extra information reporting necessities.
