Loan-originating funds under AIFMD II — Ireland vs Luxembourg, the practical comparison

If you are setting up a direct-lending fund in 2026 and you google the Irish rules, the top results will confidently describe a leverage cap of 200%, a 25% diversification limit and a mandatory closed-ended structure. All of it is dead law. The Central Bank of Ireland deleted its standalone loan-origination regime from the AIF Rulebook published 5 May 2026, because since 16 April 2026 both Ireland and Luxembourg run loan-originating funds on the same EU rulebook: Directive (EU) 2024/927 — AIFMD II. The domicile question has therefore changed shape. It is no longer "which country's loan-fund rules are lighter" — the substantive rules are now identical — but "which vehicle, which authorisation gate, and which national extras." This page holds that comparison side by side.

Three vocabulary notes before the matrix. A loan-originating AIF is a fund whose investment strategy is mainly to originate loans, or whose originated loans reach at least 50% of its net asset value (Art. 4(1)(at) of the consolidated AIFMD) — once you cross either test, the leverage caps and the closed-ended default below switch on. The commitment method is the AIFMD leverage calculation that nets and converts derivative positions into equivalent asset exposure — the new caps are expressed as exposure-to-NAV on this method, which is not the same base as the old Irish gross-assets test. And originate-to-distribute is the banned strategy: originating loans with the sole purpose of selling them on.

The master matrix

The one-line read: the substantive lending rules are now the same in both domiciles; what still differs is the vehicle mechanics, the authorisation gate, and each country's leftover national layer.

Leverage — one cap, two histories

Art. 15(4b) of the amended AIFMD is blunt: an AIFM shall ensure that the leverage of a loan-originating AIF "represents no more than: (a) 175%, where that AIF is open-ended; (b) 300%, where that AIF is closed-ended" — leverage being the ratio of the AIF's exposure, calculated on the commitment method, to its NAV. Two carve-outs matter at the desk, both inside Art. 15(4b) of the consolidated text: borrowing that is fully covered by contractual capital commitments from investors — the standard subscription line — does not count as exposure for the cap (third subparagraph), and funds whose lending consists solely of shareholder loans (Art. 4(1)(as): loans to undertakings in which the AIF holds at least 5% of capital or voting rights, not sellable independently) below 150% of the AIF's capital escape the leverage caps (final subparagraph). One precision the law-firm summaries tend to blur: that shareholder-loan exemption lifts the caps only — the closed-ended default in Art. 16(2a) carries no shareholder-loan carve-out, so a shareholder-loan-only fund that meets the loan-originating AIF definition still defaults to closed-ended unless it makes the liquidity demonstration.

The history is why the comparison used to matter and now doesn't. Ireland's legacy L-QIAIF chapter capped gross assets at 200% of NAV — a different, stricter basis than the new commitment-method test — while Luxembourg never had a product-level cap at all, which is precisely why so much private credit structured through unregulated SCSps and RAIFs there. AIFMD II replaced the Irish cap and imposed the first-ever cap on the Luxembourg vehicles in the same stroke. A closed-ended fund that was "over-levered" by legacy Irish standards can be comfortably inside 300% today; a Luxembourg RAIF that never thought about a cap now has one.

Risk retention and the originate-to-distribute ban

Art. 15(4i): the AIF must retain 5% of the notional value of each loan it has originated and subsequently transferred — held to maturity for loans of up to 8 years (and consumer loans regardless of maturity), and for at least 8 years for everything else. Derogations exist for liquidation, sanctions/product-requirement compliance, sales needed to implement the strategy in investors' best interests, and sales of deteriorating loans where the buyer is told (Art. 15(4i), second subparagraph). Art. 15(4h) separately bans the pure originate-to-distribute model — originating with the sole purpose of transferring. Lending to the AIFM, its staff, its depositary or its delegates is prohibited (Art. 15(4e) — which also catches entities in the AIFM's own group, unless the group entity is a financial undertaking financing only unconnected borrowers). None of this is domicile-specific: a Dublin ILP and a Luxembourg SCSp carry the identical retention book-keeping burden, and neither the CBI nor the CSSF has gold-plated it.

Open-ended lending funds — allowed on paper, undefined in practice

The directive's default is closed-ended, with a derogation: an AIFM may run a loan-originating AIF open-ended if it can demonstrate to its home regulator that the fund's liquidity-risk management system is compatible with its strategy and redemption policy (Art. 16(2a)). The detail was delegated to an ESMA RTS — final report published 21 October 2025 (sound liquidity management, liquid-asset availability without a fixed target bucket, at least annual stress testing, a redemption policy aligned to the liquidity profile). But per McCann FitzGerald, the European Commission has classed this RTS among 115 "non-essential" measures it will not adopt before 1 October 2027 — a position still standing, with the RTS still unadopted, when this page was last verified. Practical consequence: the open-ended demonstration currently runs on Level 1 text plus each regulator's judgment — an evergreen private-credit fund is negotiating its liquidity case with the CBI or CSSF without the binding technical standard either side will later be held to.

Grandfathering — the three populations

Directive Art. 61 splits existing funds by one date, 15 April 2024 (entry into force), per the AIMA analysis of the transitionals:

• Constituted before 15 April 2024, raising no new capital after it — deemed to comply with the loan-origination requirements indefinitely. A fully-raised 2022 vintage closed-ended fund can run off untouched.
• Constituted before 15 April 2024, still raising — may maintain, but not increase, concentrations or leverage above the new limits until 16 April 2029, then full compliance.
• Loans originated before 15 April 2024 — outside most of the new machinery (credit policies, connected-party bans, originate-to-distribute prohibition, risk retention, consumer restrictions) regardless of what the fund does next.

Constituted on or after 15 April 2024: no grandfathering — full compliance from the national application date. Note the trap inside the middle bucket: "maintain but not increase" means a redemption or NAV fall that pushes a grandfathered ratio higher is a problem you must manage, not a status you passively enjoy.

Passporting — the actual new thing

Before AIFMD II, cross-border lending from a fund was a patchwork: several Member States treated lending as a banking-licence activity, so an Irish or Luxembourg fund lending into those markets needed local workarounds. The directive's harmonised regime was built, in its own recitals, to facilitate cross-border loan origination — an EU AIFM managing a loan-originating AIF can now originate throughout the Union on one rulebook, which Pinsent Masons calls the unlock for scalability from a single domicile. Two limits: it rides on the AIFM management/marketing passports rather than being a freestanding "lending passport," and Art. 15(4g) lets any Member State prohibit AIF lending to consumers in its territory — both Ireland and Luxembourg have done exactly that at home, and a pan-EU consumer-lending strategy must be checked country by country. Corporate direct lending — the core private credit trade — is unaffected.

What's left of each national layer

Ireland. The May 2026 Rulebook deleted the prescriptive loan-origination chapter and, alongside it, the restriction on QIAIFs granting guarantees for third parties — subscription-line, asset-level and fund-family financing structures no longer need the old workarounds (Arthur Cox). What remains Irish: the QIAIF is a regulated product with a depositary and CBI authorisation on the 24-hour process, the ILP gives the partnership form institutional credit LPs expect, and a decade of L-QIAIF servicing means the directive's requirements "should not present any material surprises" to Irish administrators — the new EU rules borrowed heavily from the Irish regime they replaced (Irish Funds, same source). The consumer-lending prohibition is retained — it now sits in Regulation 16(15)–(18) of the AIFM Regulations, inserted by Regulation 8 of S.I. 181/2026: no lending to consumers in the State, no servicing of such credits, while marketing in Ireland of an AIF that lends to consumers elsewhere remains permitted.

Luxembourg. The law of 3 March 2026 (the former Bill 8628) is a minimalist transposition: it adds the directive's definitions, puts loan origination on the AIFM's list of permitted functions, exercises the consumer-lending prohibition (its Art. 29 inserts a new Art. 4-1 into the 2013 AIFM Law), and otherwise changes little — because Luxembourg never had a bespoke loan-fund product regime to dismantle. The structuring ladder is untouched: an SCSp/RAIF reaches market without CSSF product approval (the AIFM, not the fund, is the supervised entity), a SIF or SICAR adds CSSF product authorisation where investors want it (ICLG). Enhanced AIFMD II reporting applies from 16 April 2027 — Art. 57 of the law defers its two reporting articles to that date (Legilux; SGSS).

Which domicile when — the honest read

This is analysis of the structural trade-offs, not advice on your fund. The old decision rule — "Luxembourg, because Ireland's L-QIAIF straitjacket (200% gross leverage, 25%-of-net-assets diversification, closed-ended only, no consumer or connected lending) is tighter than Luxembourg's nothing" — is dead on both ends: Ireland deleted the straitjacket and Luxembourg lost the "nothing." What actually still differs:

The momentum point is real but should be stated precisely: Ireland spent 2021–2026 systematically removing its disadvantages — the ILP overhaul (the Investment Limited Partnerships (Amendment) Act 2020, commenced 1 February 2021, with the beneficial-ownership sections following on 1 March 2021), then the Rulebook rebuild that swapped a prescriptive national regime for the directive floor — and its regulator publicly welcomed the harmonisation as an opportunity (Irish Funds). Luxembourg's incumbency in private debt remains enormous. The realistic frame for a new credit platform is no longer either/or on rules — it is vehicle mechanics and service-provider fit under one shared rulebook.

The dead-regime trap

Search results on this topic are unusually dangerous right now. The top-ranking document for Irish loan-origination funds is a 2018 law-firm brochure, "Establishing an Irish Regulated Loan Origination Fund" — a competent description of the L-QIAIF regime as it stood eight years ago: 200% gross-assets leverage cap, 25%-of-net-assets per-group diversification, mandatory closed-ended structure, prohibited borrower list (the same regime in William Fry's primer). Every one of those numbers was removed from the AIF Rulebook on 5 May 2026. The tell that a page is describing the dead regime: it says "L-QIAIF," "200%," or "25% diversification." The live regime says "loan-originating AIF," "175%/300%," and "20% — financial-sector borrowers only." Even the firms that wrote the old guides have moved on — Dechert's own January 2026 note covers the new framework — but the 2018 PDF still outranks the 2026 analysis. Check the date on anything you cite.

The practical gotcha: the two regimes' numbers are close enough to be misapplied without anything obviously breaking. A COO who "conservatively" runs a closed-ended Irish credit fund to the old 200% gross-assets cap may believe they have headroom under the new 300% — but the new cap is commitment-method exposure over NAV, a different calculation on a different base, and the 20% concentration limit they remember as "25%, everyone" now catches only financial-sector borrowers while their fund documents may still hard-code the stricter dead rule. Read your own LPA before you read the directive: many 2015–2025 vintage Irish funds imported the L-QIAIF limits contractually, and deleting the regulation did not delete your side letter.