The German Federal Ministry of Finance has published a revised draft of the Fund Risk Limitation Act (“Fondsrisikobegrenzungsgesetz”) as part of implementing AIFMD II into national law. This update marks a significant shift in the regulatory landscape for alternative investment fund managers (AIFMs), particularly those operating under the sub-threshold regime.

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For fund managers in private equity, venture capital and private credit, the changes are far-reaching: from recalculating assets under management (AuM) based on fair market value to new loan origination and reporting obligations. These developments could push many managers beyond the current thresholds, triggering full AIFM authorisation requirements and introducing substantial operational and compliance challenges.

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This briefing explores the key regulatory changes, their practical implications for sub-threshold AIFMs and the strategic options available to managers navigating this shift, including partnering with a regulated Luxembourg AIFM such as Langham Hall.

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What is changing and who is affected

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The draft law introduces several key updates:

• AuM recalculation: Assets under management (AuM) must now be calculated based on fair market value instead of book value under German GAAP, potentially pushing many sub-threshold AIFMs above the regulatory threshold of €500 million (unleveraged) respectively €100 million (leveraged).
  
  • If the threshold is exceeded, AIFMs must apply for a full license within 30 calendar days and submit complete documentation within three months.
  • This means managers would lose access to the lighter regulatory regime, facing increased demands on operational infrastructure, compliance processes, staffing and, ultimately, higher costs to maintain their business.
  • Falling under the full AIFM license also requires the appointment of a Depositary, which was previously optional. There is some reprieve here as AIFMD II allows the passporting of depositary services (subject to certain conditions), meaning managers are not limited to only German depositaries
• Loan origination requirements: Sub-threshold managers engaging in loan origination will now face the same organisational, risk and liquidity standards as fully authorised AIFMs. These include retention obligations and borrower restrictions, adding a layer of complexity to what was previously a lighter regime. The only exceptions are shareholder and mezzanine loans, which remain outside the scope of these rules.
• Enhanced reporting obligations: Managers must now provide detailed disclosures on managing directors, significant shareholders and any changes to these positions. This additional transparency raises governance requirements and demands robust internal processes to ensure timely and accurate reporting.
• No expansion of ancillary services: Unlike fully licensed AIFMs, sub-threshold AIFMs are not permitted to offer ancillary services to third parties.
• Expanded lending capabilities: The Act lifts previous restrictions on lending and introduces exemptions from banking monopoly rules for special purpose vehicles (SPVs). This creates new flexibility in private credit and debt, enabling managers to structure transactions more innovatively while remaining compliant.
• Greater alignment with EU standards: AIFMD II aims to create a more consistent regulatory framework across the EU, reducing fragmentation, simplifying cross-border operations and strengthening investor confidence.

Real-world example: A German Venture Capital manager at risk

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Under the proposed fair market valuation rules, a German venture capital manager with, say, €480 million in AuM under German GAAP could find themselves above the regulatory threshold almost overnight when one of their portfolio companies goes through a new funding round and a significant increase in valuation. Crossing that line triggers a strict timeline: 30 days to apply for a full AIFM license and three months to submit complete documentation. For most firms, meeting these deadlines without significant internal resources would be a major challenge.

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The implications extend beyond compliance. Transitioning to a fully AIFMD-compliant structure requires a fundamental upgrade in infrastructure, processes and staffing. These bring higher costs and greater complexity, diverting attention from the core objective: sourcing attractive investments and delivering value to investors.

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Langham Hall’s view

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These changes create both risk and opportunity. Many German managers will now need to reassess their fund structures, particularly those relying on the sub-threshold regime.

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For many, the most efficient route will be to partner with a regulated AIFM. Langham Hall’s AIFM platform can passport into Germany and enables the transition to full scope seamlessly – providing Host AIFM and Depositary support without the need to build in-house infrastructure. Alternatively, setting up a fund in Luxembourg from the outset futureproofs against such challenges.

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How we can help

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Langham Hall offers:

• Immediate access to a licensed AIFM platform, avoiding the time and cost of obtaining a full license
• Turnkey onboarding and fund setup
• Full compliance infrastructure, covering risk management, liquidity, reporting and governance
• Depositary services for AIFs domiciled in any EU Member State, leveraging new AIFMD II provisions for cross-border appointments
• Annex IV reporting tailored to EU and non-EU managers, meeting enhanced AIFMD II requirements
• Cross-border expertise, supporting funds with German and EU investor bases
• Flexibility in ancillary services, that sub-threshold AIFMs are restricted from offering.

Langham Hall is well-positioned to guide managers through this transition, providing regulatory certainty, operational efficiency and strategic flexibility. Whilst our team has deep expertise in managing Germany-domiciled AIFs, the increasing complexity of the domestic regime often makes a Luxembourg structure the more practical route.

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Luxembourg offers a proven legal framework, an investor-friendly environment and the Commission de Surveillance du Secteur Financier (CSSF)’s pragmatic supervisory approach, all while ensuring full compliance with AIFMD II. For many managers, this provides a more efficient and flexible alternative without compromising on governance or investor confidence.

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As the Fund Risk Limitation Act progresses, we will continue to monitor its implementation and support managers as they navigate these changes with clarity and confidence.