Key Takeaways
- • The EU's AIFMD II directive takes effect in April 2026, establishing a harmonized regulatory framework for loan origination funds across member states with bans on 'originate to distribute' strategies and new risk retention and concentration requirements.
- • Semi-liquid fund market saturation is intensifying capital-raising pressure on new entrants, with successful launches increasingly dependent on seed funding from institutions—often requiring discounts or fee holidays in exchange for early-stage risk assumption.
- • Global secondary market volumes surged to $103 billion in H1 2025 (according to Jefferies), a 51% increase from the previous record of $68 billion in H1 2024, reflecting sustained LP demand despite slowing primary fundraising.
- • AIFMD II tightens delegation rules in Luxembourg and Ireland, raising management company standards and requiring certain tasks to remain domestically conducted rather than delegated to third-party jurisdictions.
Summary
The European private markets landscape is entering a new regulatory era with the April 2026 implementation of AIFMD II, the EU's revised Alternative Investment Fund Managers Directive. This harmonized framework introduces substantive structural constraints on loan origination funds, including an outright prohibition on 'originate to distribute' strategies—a mechanism historically used to transfer credit risk—alongside mandatory risk retention and concentration limits. The directive also strengthens governance around AIF delegation, reporting standards, and conflict-of-interest management. Critically, most member states have declined to implement gold-plating provisions (stricter national requirements), positioning AIFMD II to facilitate broader cross-border distribution of alternative investment funds throughout the EU. However, delegation rules have been elevated in key jurisdictions: Luxembourg and Ireland now impose heightened management company requirements, forcing certain operational functions to remain in-state rather than being outsourced to third-country service providers.
The semi-liquid funds sector, while experiencing robust launch activity recently, faces intensifying capital-raising headwinds as product proliferation saturates the market. New market entrants are absorbing the sharpest competitive pressure, with capital increasingly concentrated among established managers. Successful product launches increasingly depend on institutional seed capital from private banks and other established investors, though sourcing this capital remains challenging. Most institutions gravitate toward proven managers with track records of scale, while early-stage funding rarely comes without conditions: seed investors typically demand fee discounts or fee holidays to offset the elevated risk of backing newer strategies.
Meanwhile, demand in the secondary private markets remains robust, providing a counterbalance to slowdowns in primary fundraising. According to Jefferies, global secondary market volumes reached a new record of $103 billion in the first half of 2025, representing a 51% increase from the previous peak of $68 billion in H1 2024. This sustained secondary market appetite among limited partners underscores their strategic shift toward liquidity solutions and portfolio rebalancing, even as fresh capital deployment into primary private equity and credit vehicles moderates.
The semi-liquid funds sector, while experiencing robust launch activity recently, faces intensifying capital-raising headwinds as product proliferation saturates the market. New market entrants are absorbing the sharpest competitive pressure, with capital increasingly concentrated among established managers. Successful product launches increasingly depend on institutional seed capital from private banks and other established investors, though sourcing this capital remains challenging. Most institutions gravitate toward proven managers with track records of scale, while early-stage funding rarely comes without conditions: seed investors typically demand fee discounts or fee holidays to offset the elevated risk of backing newer strategies.
Meanwhile, demand in the secondary private markets remains robust, providing a counterbalance to slowdowns in primary fundraising. According to Jefferies, global secondary market volumes reached a new record of $103 billion in the first half of 2025, representing a 51% increase from the previous peak of $68 billion in H1 2024. This sustained secondary market appetite among limited partners underscores their strategic shift toward liquidity solutions and portfolio rebalancing, even as fresh capital deployment into primary private equity and credit vehicles moderates.
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