The review of the investment fund regulatory framework: how AIFMD II, ELTIF 2.0 and cross-border distribution are reshaping fund strategy in 2026
2026 is the year in which in particular three frameworks – AIFMD II, ELTIF 2.0 and the cross-border distribution regime – are converging in practice, with tangible consequences for fund structuring, distribution and operations.
1. AIFMD II: from transposition to operational reality
Luxembourg transposed AIFMD II through the law of 3 March 2026[1], applicable from 16 April 2026. The transposition was faithful, without gold-plating, preserving the flexibility the market relies on. Three changes dominate day-to-day practice.
Liquidity management tools. Each AIFM managing open-ended AIFs must now have selected at least two liquidity management tools from the harmonised EU list, after assessing suitability against the fund’s strategy and redemption policy. Managers had to revisit offering documents and liquidity policies, and embed activation decisions into fund governance. The CSSF’s dedicated eDesk modules for LMT selection and activation[2] make that operational shift particularly visible in 2026.
Loan origination. AIFMD II introduced the first EU-wide regime for loan-originating AIFs, covering risk retention, concentration limits and leverage caps. Loan-originating AIFs must be closed-ended by default, with an open-ended structure permitted only where the AIFM can demonstrate compatible liquidity risk management. For Luxembourg’s well-established private credit platform, RAIFs account for 64% of debt fund vehicles and SCSps for 80% of debt funds[3], this largely confirms existing practice.
Delegation. AIFMD II has not fundamentally changed which functions AIFMs may delegate; it has instead strengthened the oversight framework, particularly for delegation to third-country entities, where enhanced reporting obligations now apply. AIFMs are reviewing delegation arrangements and data flows ahead of the enhanced supervisory reporting from April 2027. The addition of loan origination to the catalogue of AIFM functions also brings delegation arrangements in private credit under the same supervisory standards, making delegation increasingly a data and oversight exercise as much as a contractual one.
2. ELTIF 2.0: gaining ground in retailisation
The ELTIF market continues to gain momentum, with the number of authorised ELTIFs exceeding 300 across the EU[4], of which more than half are domiciled in Luxembourg (the overall market has roughly tripled in three years). ESMA’s 2026 market report on costs confirms this trend: 62% of all authorised ELTIFs were launched in 2024 or 2025, while private equity ELTIFs reported the strongest returns in 2024, at 10%[5]. The dominant wrapper in Luxembourg is the Part II UCI for retail mandates, with the RAIF-ELTIF combination increasingly favoured where the strategy targets professional or well-informed investors[6].
The structural driver is the semi-liquid, evergreen design: open-ended ELTIFs with periodic redemption windows increasingly complement the traditional closed-ended model. By removing the ELTIF 1.0 barriers — minimum investment thresholds, narrow eligible asset scope and misaligned MiFID II suitability rules — the regulation has unlocked genuine retail distribution at scale. ELTIF status is therefore increasingly a distribution decision: the target investor base now shapes the choice of wrapper, liquidity architecture and distribution channels from inception.
3. Cross-border distribution: harmonised on paper, still capacity for improvement in practice
The EU pre-marketing and notification framework has been in place for several years, but 2026 has brought the clearest evidence of where friction persists. The CSSF has digitalised its notification process and updated its templates to reflect AIFMD II, including new management and marketing passport templates required from 31 July 2026[7], while at EU level further integration initiatives point towards more centralised passporting processes[8].
For Luxembourg-based managers, the practical response has been to combine ELTIF’s harmonised retail passport for the retail sleeve with the AIFMD professional passport for the institutional sleeve, while relying on national private placement regimes where passporting is unavailable. Reverse solicitation remains relevant in certain contexts but depends on genuine investor initiative. These frameworks no longer operate as separate compliance workstreams: structuring and distribution are designed together from inception.
4. Luxembourg-specific developments
Bill of law 8814[9], tabled on 30 July 2026, proposes the introduction of statutory compartments for SCS/SCSp AIFs not subject to a Luxembourg product law but managed by an authorised EU AIFM. A compartment is an economically ring-fenced pool of assets within a single legal entity, exclusively available to satisfy the liabilities attributable to that compartment, shielding investors of one compartment from the risks of another. Until now, these partnerships could only replicate segregation contractually. The new regime borrows the established compartment mechanics from the RAIF and SIF Laws, making it suited to deal-by-deal structures, multi-strategy platforms and parallel fund arrangements. By offering statutory segregation at the partnership level, the Bill gives fund managers materially greater flexibility in structuring their vehicles and narrows the structural gap between Luxembourg and offshore jurisdictions already offering statutory segregated structures (such as the Cayman Islands’ segregated portfolio company (SPC)). The bill narrows, but does not eliminate, the RAIF’s comparative advantage for institutional, partnership-based strategies. It is currently proceeding through Parliament.
Luxembourg has also modernised its carried interest regime through the reform adopted in early 2026[10], distinguishing contractual carry (taxed at a quarter of the global tax rate) from participation-linked carry (fully exempt under qualifying conditions). The reform broadens the pool of eligible beneficiaries, positioning Luxembourg as a driver of front-office relocation.
Additionally, the CSSF has recalibrated diversification and borrowing thresholds through Circular 25/901, replacing flat limits with a tiered approach keyed to the investor base and formalising ramp-up periods that reflect how private funds actually deploy capital. Circular 26/912 repealed Circular IML 91/75, completing the migration of a nineties-era framework into current supervisory practice.
The introduction of deferred payment of the minimum share capital for S.à r.l., effective from 2 June 2026[11], reduces the immediate cash injection requirement when establishing GP or holding vehicles.
Taken together, these measures illustrate a consistent legislative strategy: adapting the domestic toolbox to remain competitive as the broader EU regulatory framework evolves.
Conclusion
The significance of last year lies not in any single regulatory reform but in their convergence. AIFMD II now shapes the operational architecture of alternative funds, ELTIF 2.0 links product design to retail distribution, and Luxembourg is adapting its domestic toolbox in parallel. Structuring, liquidity, investor access and distribution can no longer be addressed sequentially, they must be designed together from inception.
AKD advises fund managers, sponsors and institutional investors on the structuring, regulation and distribution of investment funds across the EU. To discuss how these developments affect your strategy, please contact our Luxembourg team.
[1] Law of 3 March 2026 transposing Directive (EU) 2024/927 (AIFMD II) and amending, inter alia, the law of 12 July 2013 on alternative investment fund managers and the law of 17 December 2010 relating to undertakings for collective investment.
[2] CSSF, “Communication to the investment fund industry“, 18 March 2026, and follow-up of 10 April 2026 (AIFMD II liquidity management tools and eDesk modules).
[3] ALFI/KPMG, Private Debt Fund Survey 2025.
[4] ESMA, Register of authorised European long-term investment funds (ELTIFs). See also “ELTIF growth: For the first time, 300 registered funds and strongly increasing assets under management”.
[5] ESMA, Market Report on Costs and Performance of EU Retail Investment Products 2025, 3 March 2026.
[6] Scope Fund Analysis, ELTIF Study 2025; “ELTIF market enters new phase as domestic momentum builds”; “Solid growth of the ELTIF fund market”.
[7] CSSF, communiqué of 30 July 2026 on management notifications and de-notifications with a European passport (updated AIFMD II templates applicable from 31 July 2026).
[8] European Commission, Targeted Market Integration and Supervision Package, published on 12 March 2025.
[9] Bill of law 8814 amending the law of 12 July 2013 on alternative investment fund managers.
[10] Law resulting from Bill of Law No. 8590, amending the amended Law of 4 December 1967 on income tax and the amended Law of 12 July 2013 on alternative investment fund managers, Mémorial A No. 26 of 4 February 2026.
[11] Law of 18 May 2026 amending the law of 10 August 1915 on commercial companies, as amended, allowing deferred payment of the minimum share capital for S.à r.l.
Authors
Jevgeniy Nesch
Partner
AKD
