The reliance on an EU AIFM secures that the Luxembourg AIF benefits from an EU marketing passport that provides easy access to EU professional investors. As an alternative, some USFM opt to manage the Luxembourg AIF themselves. In such case marketing access to EU professional investors is secured through separate country-by-country marketing registrations in the relevant EU Member States (EUMS). Not all EUMS accommodate these registrations.

Both setups trigger disclosure obligations towards (prospective) investors and EU regulators. The disclosures deal amongst others with the AIF’s leverage. Leverage is any method that increases the financial exposure of an AIF beyond the volume of its drawn capital. Borrowing is the most basic example of leverage, but derivative instruments can also cause leverage. Temporary borrowings backed by uncalled capital commitments (e.g. subscription lines) do not count towards leverage. Borrowings by entities controlled by the AIF may qualify as the AIF’s leverage if the AIF must answer to the creditors of those entities.

Under the current rules, EU AIFMs and USFM are free to choose the leverage limits for each AIF. However, by April 16, 2026, EUMS must secure that EU AIFMs apply a leverage cap for AIFs that mainly originate loans. This cap is 300% for closed-ended and 175% for open-ended loan origination funds. The caps are expressed as the ratio of the AIF’s financial exposure over its net asset value. The caps are calculated under the commitment method (CM). Compared to the gross method (GM), the CM avoids inflated leverage ratios as it e.g. factors in risk mitigation techniques through the use of derivatives.

The disclosure responsibilities vest with the AIF’s manager, hence the EU AIFM or the USFM depending on the setup. The disclosure towards investors must be made before investors are onboarded and promptly in case of any material change to the disclosed information. The leverage disclosure must provide insight in e.g. the types, sources and the maximum leverage. The total amount of actual leverage must be disclosed to investors periodically, which is usually done through the annual report. The disclosure is not enforceable by investors and is in principle only informative but the AIF’s constitutional documents typically provide for borrowing restrictions.  The AIF’s manager must report certain specifics on the AIF’s leverage to the EU competent authorities if it exceeds 300% under the CM. In addition, by April 16, 2026, EUMS must require AIF managers to report the total leverage of an AIF to the EU competent authorities.

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