German Fund Market Strengthening Act to transform regulatory landscape

The Alternative Investment Fund Managers Directive II (AIFMD II) will bring fundamental changes to the European fund landscape. In Germany, the EU Directive will be implemented through the Fund Market Strengthening Act by 16 April 2026, introducing new rules for lending, leverage limits and liquidity management.

Strict leverage limits will apply for loan-originating alternative investment funds (AIFs) going forward: the leverage limit is 175 per cent for open-ended funds and 300 per cent for closed-ended funds. Limits are calculated using the commitment method (exposure converted into equivalent positions in the underlying asset). This approach was chosen to limit systemic risk while still enabling growth financing.

Creating a level playing field through harmonisation
The AIFMD II removes existing competitive disadvantages for German fund managers by harmonising loan origination rules across the European Union. To date, loan origination rules have been more restrictive in Germany than in other EU member states, placing German AIFs at a disadvantage.

Under the new rules, AIFs must comply with a risk retention of at least five per cent for eight years and a concentration limit has been set at 20 per cent of a fund’s capital (per borrower). In addition, risk and liquidity management requirements have been tightened. Consumer lending remains prohibited for AIFs.

Implications for German private equity firms
The German Fund Market Strengthening Act opens up the options available to closed-ended mutual special funds and makes it easier for private investors to invest in renewable energy. It also creates new requirements for AIFMs in the context of outsourcing, managing directors and sideline activities.

The Fund Market Strengthening Act mirrors the EU Directive 1:1 while avoiding any additional national restrictions, thereby safeguarding the competitiveness of German fund managers. While some of the new rules became applicable as early as July 2025, the bulk will enter into force on 16 April 2026.