responsAbility Investments AG alongside other leading European impact investing firms launch a joint call for action to modify the amendments of AIFMD – Directive 2011/61/EU proposed by the European Commission (“Proposal”). For more information, access the Proposal and our position paper. Some key takeaways:
The Proposal aims to regulate the so‐called ‘loan‐originating’ alternative investment funds (“AIFs”) - also referred to as “Debt Impact Investing Funds (“DIIFs”) and classified as dark green under article 9 of Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector (“SFDR”).
In particular, article 16(2a) of the Proposal requires that the alternative investment fund manager shall ensure that the AIF is set up in a closed‐ended structure if the notional value of its originated loans exceeds 60 % of its net asset value.
Most DIIFs are structured as open-ended funds by investors demand to make a long-term investment that gives both financial return and positive, measurable social or environmental impact. If the aforementioned article 16(2a) of the Proposal would become effective, open‐ended DIIFs would have to (i) change their fund structure, (ii) dilute their portfolios to bring it below the (arbitrary) threshold of 60% of their NAV, or (iii) cease their activities entirely, as the Proposal does not provide for a grand‐fathering regime.
Changing open‐ended DIIFs to become closed‐ended funds will prove to be virtually impossible as most investors (in particular retail investors or third parties that distribute to or act on behalf of retail investors) will not appreciate the required lock‐in periods. Most retail will have to move away from the EU’s most important Sustainable Finance objectives and potentially endanger compliance with Art. 9 SFDR.
The concerns outlined by the European Commission which led to the proposed amendments - focussing on (i) maturity mismatches, (ii) moral hazard situations, and (iii) financial stability – are not relevant for DIIFs. You can find the most important impacts of the planned legislation summarized in our position paper and we hope that our call for action will be answered by the co‐legislators of the European Union (please find the link to the public feedback page of the European Commission). responsAbility Investments AG alongside other leading European impact investing firms also plans to present concrete legislative amendments to the existing Proposal soon.