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AIFMD II (Directive (EU) 2024/927) is in force, with national transposition due by 16 April 2026, and the UCITS review is following closely behind.

For global managers using Luxembourg as their EU gateway, the practical impact is concentrated in four areas: tighter delegation and substance expectations, a new regime for loan-originating funds, mandatory liquidity management tools for open-ended funds, and expanded reporting. Managers who reassess their delegation model, substance footprint and fund documentation early will protect their EU market access and avoid costly retrofitting later.

For managers who reach European investors through Luxembourg, AIFMD II and the UCITS review are not abstract EU technicalities; they reshape how funds are structured, delegated and operated. Luxembourg's passporting advantage has always rested on a simple proposition: a properly authorised manager can market across the EU from a single domicile. That advantage is now only as strong as a manager's ability to satisfy tightening substance and delegation expectations.

The headline position is straightforward. AIFMD II is in force, with Member States required to apply the new rules from April 2026, and the UCITS Directive has been amended in parallel; a broader UCITS review is expected to follow closely. For managers in the UK, US, Switzerland and Asia, the practical question is no longer whether to engage, but how quickly. This piece sets out what has changed, what remains in transition, and what it means for managers operating from outside the EU.

AIFMD II (Directive (EU) 2024/927) amends both the AIFMD and the UCITS Directive. It entered into force in April 2024, and Member States, including Luxembourg, must transpose it into national law by 16 April 2026. In practice, the Commission de Surveillance du Secteur Financier (CSSF) will give effect to the regime through national legislation and supplementary circulars, with certain technical standards still to be finalised by ESMA. The timeline matters as much as the content: some obligations bite on transposition, while others phase in or await regulatory technical standards (RTS).

The scope is broad but uneven. The reforms affect all AIFMs to some degree through delegation, substance, and reporting. Still, the most consequential changes are concentrated in loan origination, liquidity management tools (LMTs) for open-ended funds, and the delegation model used by non-EU managers. The UCITS review runs on a separate track. The liquidity provisions have been aligned with AIFMD II through the same directive. Still, the wider UCITS VI agenda, covering issues such as eligible assets, remains at an earlier, consultative stage. Managers should treat the two as related but distinct.

For most global managers, this is the section that matters. AIFMD II preserves the delegation model; a Luxembourg AIFM can still delegate portfolio management to a manager in London, New York, Zurich or Singapore, but it raises the bar on transparency and accountability. Regulators now expect a clear, documented view of the entire delegation chain: where functions sit, who performs them, and how they are supervised. Delegation reporting is expanded, and ESMA will conduct peer reviews to ensure that letterbox entities do not slip through the cracks.

Substance is the other side of the same coin. A Luxembourg AIFM must demonstrably perform the functions it is authorised for, with at least two senior persons conducting its business in the EU on a full-time basis. It can no longer present a lean local presence while substantive work is done elsewhere, without that arrangement attracting scrutiny. For a US- or Asia-based manager acting as delegated portfolio manager of a Luxembourg AIFM, the message is clear: the local entity needs genuine decision-making capability, robust oversight of delegates, and the resources to match. The CSSF and ESMA are drawing firmer lines here, although precisely how far substance expectations extend c...

The British Virgin Islands is one of the world's leading jurisdictions for the formation of investment funds. With a well-established regulatory framework, tax-neutral environment and efficient approval processes, the BVI offers a compelling platform for fund managers — particularly those launching their first fund or structuring vehicles below US$100 million.

This guide explains the key open-ended hedge fund categories available in the BVI, the benefits they offer, the regulatory requirements involved and the step-by-step process for obtaining fund approval.

A BVI investment fund is a pooled investment vehicle incorporated or established in the British Virgin Islands that collects capital from investors and deploys it in accordance with a defined investment strategy. BVI funds are regulated under the Securities and Investment Business Act, 2010 (Revised) (SIBA) and overseen by the BVI Financial Services Commission (FSC).

BVI funds can be structured as companies (the most common form), limited partnerships or unit trusts, offering flexibility to match the preferences of both managers and investors. Under SIBA, investment funds fall into five recognised categories: incubator funds, approved funds, private funds, professional funds and public funds. Each category has different investor eligibility thresholds, minimum investment requirements, regulatory obligations and validity periods, allowing managers to select the structure that best suits their fundraising strategy and investor base. Incubator funds and approved funds are particularly suited to emerging managers with assets under management below US$20 million and US$100 million, respectively.

An approved fund is a category of BVI investment fund designed for emerging managers seeking a cost-effective regulated fund structure with light ongoing obligations. Unlike professional or private funds, approved funds benefit from a fast-track approval process — enabling them to start business two business days after submitting a complete application to the FSC.

To qualify as an approved fund, the vehicle must have no more than 20 investors and net assets not exceeding US$100 million. There is no minimum initial investment requirement. The approved fund must appoint an administrator and a BVI-authorised representative, but is not required to appoint an investment manager, custodian, or auditor. The approved fund category is particularly popular with emerging managers who want a regulated fund product with lighter ongoing obligations and lower costs than private or professional funds, while benefiting from an unlimited validity period.

The BVI offers several practical advantages for both fund sponsors and investors. Understanding these benefits helps explain why the jurisdiction remains a top choice for global fund formation.

Tax neutrality. BVI funds are not subject to income tax, capital gains tax, withholding tax or stamp duty in the BVI, allowing returns to flow to investors without an additional layer of jurisdiction-level taxation.

Regulatory credibility. Funds regulated under SIBA and supervised by the FSC benefit from a recognised and respected regulatory framework. This can be an important factor for institutional investors conducting due diligence on offshore vehicles.

Speed and efficiency. The BVI approval process is well-established and, with proper preparation, fund approvals can typically be obtained within a matter of weeks rather than months. This allows managers to move quickly from structuring to fundraising.

Structural flexibility. BVI law permits funds to be structured as companies, limited partnerships, or unit trusts, with wide latitude in governance arrangements, share classes, fee structures, and investor rights. This flexibility is especially valuable for managers with bespoke strategies or non-standard investor arrangements.

Cost effectiveness. Compared with many onshore jurisdictions, the costs of incorporating, licensing and maintaining a BVI fund are co...

This guide provides an overview of the powers, duties and obligations of a director of an exempted company incorporated under the Companies Act of the Cayman Islands (Companies Act) which is registered with the Cayman Islands Monetary Authority (CIMA) as a fund (Fund).

This guide is limited to those Funds registered with CIMA under section 4(3) or 4(4)(a) of the Mutual Funds Act (a Mutual Fund) and those Funds registered with CIMA under the Private Funds Act (a Private Fund) as well as the law and practice of the Cayman Islands. Other duties, obligations and potential liabilities may also arise under the laws of other jurisdictions.

There is no precise definition of a 'director' under Cayman Islands law. The directors of a Fund may be individuals or corporate bodies and they are the persons with ultimate responsibility for the management and conduct of the Fund's affairs.

The first directors of a Fund (whether described as 'executive' or 'non-executive') are typically appointed by the initial subscribers to the Fund or otherwise in accordance with the articles of association of the Fund (Articles). The register of directors maintained by the Fund will be prima facie evidence of the identity of the directors from time to time.

A person undertaking the activities of a director without being formally appointed may be found to be acting as a 'de facto director'. Also, if the duly appointed directors of a Fund are found to be acting in accordance with the directions or instructions of another person then that person may be found to be acting as a 'shadow director'. A person is not deemed to be a shadow director however by reason only that the directors act on advice given by such person in a professional capacity, so that an investment adviser of a Fund making recommendations to the directors as to the purchase or sale of investments should not usually constitute a shadow director.

Executive directors, non-executive directors, shadow directors and de facto directors are all subject to the duties and obligations set out in this guide.

When deciding whether or not to act as a director of a Fund, the following points should be considered:

Who will be the other directors of the Fund? Will your fellow directors have the ability to work with you to properly coordinate the proper oversight and management of the Fund?

Any other interests you may have in the overall structure of the Fund and its advisers or service providers. If you are a connected person (for example, a principal of the Fund's investment manager) you may want to consider either not sitting on the board of the Fund or making sure that you are in a minority position. These measures will reduce the potential for conflicts of interest to arise which could increase the risk of your actions later being challenged by the investors of the Fund as not being in accordance with your duties to the Fund.

The expectations of the Fund's key investors. They may be comfortable with a board of directors comprised of connected persons or they may require the Fund to have one or more directors independent of the Fund's investment manager. This is something that you may wish to discuss further with the Fund's representatives and the Fund's current or proposed key investors before agreeing to accept any appointment as a director.

You need to have sufficient and relevant knowledge and experience to discharge your duties as a director. It is up to you to acquire and maintain sufficient knowledge to enable you to carry out your role. You should use the Fund's professional advisers to provide advice on any areas or transactions of which you are unsure. In particular, you should ensure that you are able to properly read and understand the financial information relating to the Fund, including its financial statements. If there is anything that you do not understand, then you should promptly obtain professional advice.

Whether the Fund has in place, or will be obtaining, any directors and officers ...

The Cayman Islands Data Protection Act (the DP Act) governs how a data controller may process, use and retain personal data.

Anyone who falls within the definition of a "data controller" (such as a Cayman Islands investment fund) must now comply with eight data protection principles in relation to any personal data processed by the data controller. Where a data controller engages a third party (such as an administrator or investment manager) to process personal data on its behalf, the data controller must ensure the third party complies with the eight data protection principles.

In addition to governing how a data controller processes, uses and retains personal data, the DP Act also sets out the rights of individuals to control their personal data and implements a system to protect against the misuse of personal data. The DP Act is similar to the General Data Protection Regulation (GDPR) of the European Union with which many clients will be familiar.

For a general overview of the Cayman Islands DP Act please see our guide to data protection in the Cayman Islands.

In order for investors to invest in an investment fund they must provide certain personal identifying information to the investment fund. Even where the investor is an entity, personal identifying information of contact persons, beneficial owners, directors, employees, partners or members of that entity will be provided to the investment fund. This personal information will be considered personal data under the DP Act.

The individual to which the personal data relates does not need to be in the Cayman Islands or a citizen of the Cayman Islands in order for the DP Act to apply.

Any investment fund structured as a Cayman Islands company or partnership, or any foreign company registered in the Cayman Islands that acts as a general partner of an investment fund will be subject to the DP Act and will be a data controller.

As a data controller, an investment fund must ensure that it complies with the eight data protection principles when it processes any personal data. It must also ensure that any third party that processes personal data on its behalf also complies with the eight data protection principles.

Cayman Islands investment funds must:

send a privacy notice to existing investors

update their subscription documents to include a privacy notice for new investors as well as obtain certain acknowledgements, representations and warranties

update offering documents to reflect the requirements under the DP Act

update agreements with any third parties that process personal data on behalf of the investment fund to ensure such processing is undertaken in compliance with the DP Act especially where there is transfer of data outside of the Cayman Islands

If the investment fund is already subject to GDPR then the investment fund may have already adopted a GDPR compliant privacy notice. If that is the case, then a few minor amendments to the privacy notice to reflect the DP Act are all that are needed.

If the investment fund has not yet adopted a privacy notice then it should prepare one in order to communicate the required information to its investors.

In either case the privacy notice should be sent to existing investors and/or made available on an investor or fund administration portal.

The subscription agreement of the investment fund will also need to be updated to include the privacy notice and certain acknowledgements from the investor.

It should also contain representations and warranties from entity investors that they have provided the privacy notice to any person whose data is given to the investment fund (eg beneficial owners, directors etc) and may need to also contain consent provisions for specific activities prescribed under the DP Act, such as the processing of sensitive personal data if applicable.

Offering documents should be updated to include a brief disclosure and overview of the DP Act. If no update to the offering documents is scheduled or the investmen...

This guide looks at the roles and responsibilities of the nominated officers of financial service providers whose job it is to look out for and report suspicious activity and who oversee the compliance function and ensure that adequate systems and controls are in place to comply with the Anti-Money Laundering Regulations.

Money laundering is the process by which the proceeds of crime are channelled through the economy/financial system in a way which is intended to conceal the true origin and ownership of the proceeds of criminal activity. The Proceeds of Crime Act (the PC Act), the Terrorism Act and the supporting Anti-Money Laundering Regulations (the Regulations) are the main pieces of legislation in the Cayman Islands aimed at combating money laundering, proliferation financing and terrorist financing. Under these laws, those persons carrying out "relevant financial business" (referred to as financial service providers or FSPs) must apply a risk based approach to anti-money laundering, proliferation financing and terrorist financing (together, AML) compliance.

Nominated officers - money laundering reporting officer and deputy

The PC Act requires that FSPs have a "nominated officer" in place for the purpose of receiving reports relating to criminal conduct, with the Regulations creating the roles of the Money Laundering Reporting Officer (MLRO), Deputy Money Laundering Officer (DMLRO) and AML Compliance Officer (AMLCO). Accordingly, natural persons must be appointed as the MLRO, DMLRO and AMLCO for all FSPs, including investment funds.

The Regulations and guidance notes on the prevention and detection of money laundering and terrorist financing in the Cayman Islands (and amendments) (Guidance Notes) published by the Cayman Islands Monetary Authority (CIMA) set out more details on each of these roles and functions.

Who can be appointed as MLRO?

Under the Regulations each person carrying out relevant financial business must designate a person at management level as their MLRO, to whom suspicious activity reports (SARs) must be made. The MLRO should be someone who is well versed in the business of the FSP which may give rise to opportunities for money laundering, proliferation financing or terrorist financing. A DMLRO must also be appointed to perform the MLRO's functions in their absence. The DMLRO should be a staff member of similar status and experience as the MLRO.

The Guidance Notes provide that the MLRO should:

Be a natural person

Be autonomous, meaning the MLRO is the final decision maker as to whether to file a SAR

Be independent, meaning no vested interest in the underlying activity

Have access to all relevant material in order to make an assessment as to whether an activity is or is not suspicious

What is the role of the MLRO?

The primary duties of the MRLO (or the DMLRO in their absence) are to:

Receive reports of any information or other matter which comes to the attention of a person carrying out relevant financial business, which gives rise to an actual knowledge or suspicion of money laundering, proliferation financing or terrorist financing

Consider and investigate such reports in light of all other relevant information to determine if the information or other matter gives rise to such knowledge or suspicion

Have access to other information which may assist in considering such report

Make prompt disclosures to the Financial Reporting Authority (FRA) in the standard SAR form if after considering a report there is knowledge or a suspicion of money laundering, proliferation financing or terrorist financing

Establish and maintain a register of money laundering, proliferation financing or terrorist financing reports made by staff

Maintain a register of reports to the FRA

How do we identify unusual or suspicious transactions?

As the types of transactions which may be used by money launderers are unlimited it is difficult to define a suspicious transaction. The Guidance Notes are instructive in that they differentia...

The Cayman Islands is the leading jurisdiction for the offshore investment funds industry due to its combination of flexible and appropriate regulation, an approachable and effective regulator, professional service provider expertise, high reputation among investors and a tax neutral regime.

Investment funds established in the Cayman Islands fall into two broad categories: open-ended funds and closed-ended funds.

Open-ended funds provide investors with voluntary redemption or repurchase rights and closed-ended funds do not provide investors with those rights. Typically, open-ended funds will invest in liquid assets which can be readily realised to satisfy redemptions (eg listed, liquid, tradable securities) and closed-ended funds will invest in non-liquid assets requiring time to liquidate/realise value (eg real estate, unlisted companies).

This guide sets out a summary of the regulatory regime that governs closed-ended investment funds, known as private funds, which is supervised by the Cayman Islands Monetary Authority (CIMA).

For an overview of the regulatory regime that governs open-ended investment funds please see our guide to mutual funds in the Cayman Islands.

Exempted limited partnerships

An exempted limited partnership (ELP) is the most common vehicle for closed-ended funds including private equity, venture capital and real estate funds. An ELP has many similarities to its Delaware equivalent vehicle but an ELP is not a separate legal person and for this reason, it is popular with managers and investors in a number of jurisdictions. An ELP is operated and managed by its general partner. Please see our guide to ELPs for more details.

Limited liability companies

Limited liability companies (LLCs) can be incorporated in the Cayman Islands in a form closely aligned to the Delaware LLC. LLCs may be used in investment fund structures where a flexible structure similar to a limited partnership is required, but where the vehicle needs to be established as a body corporate distinct from its members. LLCs are regulated by their LLC agreement and the Limited Liability Companies Act. Please see our guide to LLCs for more details.

Companies

Exempted companies limited by shares are also used for the establishment of closed-ended investment funds, with an investor's liability being limited to the amount paid or agreed to be paid in respect of their shares. Please see our guide to exempted companies for more details.

Segregated portfolio companies

An exempted company may register as a segregated portfolio company (SPC), which is similar to a segregated cell company in many other jurisdictions.

An SPC may establish any number of segregated portfolios. Assets and liabilities attributed to a particular segregated portfolio are legally separated from the assets and liabilities attributed to any other segregated portfolio. A creditor who is party to a contract involving a particular segregated portfolio will have restricted recourse and will be entitled to recover only against assets attributed and credited to the specific segregated portfolio to which the contract is also attributed.

SPCs can be useful as multi-strategy vehicles and platform vehicles. Savings by using multi-strategy SPCs are often not as great as anticipated however and SPCs with multiple segregated portfolios do require a greater degree of care to ensure assets are properly segregated, contracts are entered into on behalf of the correct segregated portfolio and inadvertent cross-collateralisation does not occur. Please see our guide to segregated portfolio companies for more details.

Unit trusts

Cayman Islands unit trusts are established under and governed by the Cayman Islands Trusts Act and, save as modified under that law, generally applicable principles of English trust law. With a unit trust, investors contribute funds to a trustee which holds those funds on trust for the investors and each investor is directly entitled to a pro rata share in the trust's assets...

In this episode of The Funds Download, Stéphane is joined by Claire Chan, Executive Director and Head of Legal and Compliance at China AMC in Hong Kong, to discuss the evolving landscape of PRC inbound investment and what it means for investors accessing China today. Together, they explore shifting investor appetite, key access channels through Hong Kong, the changing regulatory environment, and what may lie ahead for the market.

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If you're considering establishing a fund in the Cayman Islands, Luxembourg, or the British Virgin Islands, visit our Funds Hub for guidance.

The Sustainable Finance Disclosure Regulation (SFDR) is one of the most consequential pieces of EU financial regulation to emerge in recent years. It establishes a classification framework for financial products based on their sustainability characteristics, dividing them broadly into three categories under Articles 6, 8 and 9.

While much of the market's attention has focused on the higher-tier classifications - Article 8 (products that promote environmental or social characteristics) and Article 9 (products with sustainable investment as their objective) - the reality is that the vast majority of funds in the market sit within Article 6.

This article explains what an SFDR Article 6 fund is, where they are typically established, how they differ from Articles 8 and 9 products, and how SFDR interacts with non-EU fund structures - a question of particular significance for managers domiciling funds in offshore jurisdictions such as the Cayman Islands, the British Virgin Islands and Bermuda.

An SFDR Article 6 fund is a financial product that does not promote environmental or social characteristics (Article 8) and does not have sustainable investment as its objective (Article 9). In practical terms, Article 6 is the default classification: any fund that does not make specific ESG commitments in its investment process falls within this category.

Article 6 does not mean a fund ignores sustainability risks entirely. Under Article 6(1) of the SFDR, managers of Article 6 products must still disclose the manner in which sustainability risks are integrated into their investment decisions, or explain why sustainability risks are not considered relevant. This is a disclosure obligation, not an investment mandate — the fund is not required to adopt any ESG strategy, but it must be transparent about its approach.

Article 6 funds must also comply with pre-contractual disclosure requirements under Article 6(2), including a statement in offering documents on whether and how the product considers principal adverse impacts (PAIs) on sustainability factors. Where PAIs are not considered, an explanation must be provided.

A common misconception is that Article 6 funds are "non-ESG" or sit outside the SFDR framework. This is incorrect. Every financial product offered by an EU-regulated financial market participant falls within the scope of the SFDR and must be classified. Article 6 is simply the baseline category for products that do not make affirmative ESG commitments beyond the minimum disclosure requirements.

Article 6 funds are established across a wide range of jurisdictions, both within and outside the EU. The SFDR classification itself does not dictate where a fund must be domiciled - it is a disclosure regime that applies to the manager (or, more precisely, to the financial market participant making the product available), not to the fund vehicle itself.

Within the EU, Article 6 funds are commonly structured in Luxembourg, the largest European fund domicile. Luxembourg offers well-established regulatory frameworks and is home to the majority of UCITS and EU-regulated alternative investment funds. Many managers without an ESG-specific strategy will establish their funds in Luxembourg and classify them as Article 6 funds by default.

Outside the EU, a significant number of funds that are classified as Article 6 — or that would be classified as such if marketed into the EU — are domiciled in offshore jurisdictions. The Cayman Islands remains the dominant global fund domicile for alternative investment funds, particularly hedge funds, private equity vehicles and venture capital structures. The British Virgin Islands and Bermuda are also well-established fund jurisdictions. These offshore fund structures do not fall directly within the scope of the SFDR, but SFDR classification becomes relevant when the fund is marketed to EU investors by an EU-regulated manager or distributor, or where a non-EU manager delegates to or is managed by an EU-regulat...

The Alternative Investment Fund Managers Directive (AIFMD) is the cornerstone of EU regulation for managers of non-UCITS investment funds.

It determines which fund managers require authorisation, sets asset thresholds that trigger full regulatory obligations, and establishes the framework for marketing alternative investment funds to EU investors. It also created a passport allowing AIFMs to market their funds throughout the EEA without relying on National Private Placement Rules (NPPRs). This note sets out the scope of AIFMD, the key thresholds and exemptions available, how the directive applies to EU and non-EU managers, as well as recent changes introduced by AIFMD II.

The Alternative Investment Fund Managers Directive (Directive 2011/61/EU), commonly known as AIFMD, is the primary EU regulatory framework governing managers of alternative investment funds (AIFs). It was adopted in 2011 and transposed into national law across EU member states by July 2013. AIFMD was subsequently amended by Directive (EU) 2024/927 (AIFMD II), which had to be transposed by member states by 16 April 2026.

AIFMD regulates alternative investment fund managers (AIFMs), not the funds themselves. Its core objectives are:

Investor protection through enhanced transparency and disclosure requirements

Systemic risk monitoring across the alternative investment fund sector

A harmonised regulatory and supervisory framework for AIFMs operating across the EU

An AIF is defined broadly as any collective investment undertaking that raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and which is not a UCITS fund. This definition captures hedge funds, private equity funds, real estate funds, infrastructure funds, fund of funds and other non-UCITS structures.

AIFMD applies to any entity that manages one or more AIFs, regardless of the legal form of those funds or whether they are open-ended or closed-ended. The directive captures both EU AIFMs and, in certain circumstances, non-EU AIFMs.

Funds within scope

Private equity and venture capital funds (including carried interest and co-investment vehicles)

Hedge funds (including single-strategy and multi-strategy vehicles)

Real estate, infrastructure and debt funds

Fund of funds structures

Any other collective investment scheme that does not require authorisation under the UCITS Directive

Key regulated activities

Portfolio management and risk management (these are the minimum functions that define an AIFM)

Marketing of AIF units or shares to investors in the EU

Administration, valuation and ancillary services (where performed by the AIFM)

Delegation arrangements (the AIFM remains responsible even where functions are delegated to third parties)

Structures outside scope

Certain structures are expressly excluded from AIFMD, including holding companies, institutions for occupational retirement provision (IORPs), supranational institutions (such as the EIB and EBRD), central banks, national governments and bodies managing social security and pension funds, employee participation or savings schemes, securitisation special purpose entities, and single-investor vehicles where the investor itself has management control.

AIFMD provides a registration regime for smaller EU-AIFMs that fall below certain asset thresholds. These sub-threshold AIFMs are exempt from the full scope of AIFMD but remain subject to registration and reporting obligations with their home member state regulator.

De minimis thresholds (Article 3)

EUR 100 million: applies where the AIFs managed include funds that employ leverage. This threshold is calculated on the total value of assets under management (AuM), including any assets acquired through leverage.

EUR 500 million: applies where the AIFs managed are unleveraged and have no redemption rights exercisable during a period of five years from the date of initial investment.

EU AIFMs that fall below these...