Loan Origination by German “Small AIFMs” (KVG light) under AIFMD II: What the Fondsrisikobegrenzungsgesetz Will Change

Directive (EU) 2024/927 (AIFMD II) provides a new EU-level framework for loan origination by, or for the account of, alternative investment funds (AIFs). However, this EU framework applies primarily to those AIF managers (AIFMs) that are not largely exempt from AIFMD as “registered” managers. In Germany, those registered managers are commonly referred to as a registered KVG, small AIFM (sAIFM), KVG light, or sub-threshold AIFM.

Germany must transpose AIFMD II by 16 April 2026. With the Fondsrisikobegrenzungsgesetz (draft), the German legislator is not only aiming for a largely 1:1 implementation of AIFMD II— including the rules on loan-originating funds (debt funds). In addition, it is reshaping the national rules for small/registered managers. This article provides an overview of what will change for KVG light in relation to loan origination.

Legal position before the reform: strict limits on loan origination

Under the provision applicable until the Fondsrisikobegrenzungsgesetz enters into force—section 2(4) sentence 1 no. 4 KAGB (old version)—loan origination by registered KVGs was only possible within tight constraints.

For open-ended Special AIFs, only shareholder loans were permitted, and only up to 50% of the AIF’s capital. Other loans were not permitted.

For closed-ended Special AIFs, loan origination was possible beyond shareholder loans, subject to additional conditions: within a leverage cap and an exposure cap per borrower of 20% of the AIF’s capital, the sAIFM could, for the account of the AIF, grant loans to undertakings (i.e., not to consumers).

Where AIFs were recognised as Unternehmensbeteiligungsgesellschaften, and for European venture capital funds (EuVECA) and European social entrepreneurship funds (EuSEF), the relevant rules applicable to shareholder loans already had to be observed.

In addition, the registered KVG had to comply with certain compliance requirements in connection with loan origination. These included general conduct rules, rules on preventing conflicts of interest, and requirements relating to valuation, liquidity management and risk management. Where a risk management system was required, the small KVG had to orient its implementation—subject to the proportionality principle—towards KAMaRisk (BaFin’s guidance on risk management for asset managers).

The secondary acquisition of loan receivables or the establishment of loan exposures in the context of restructurings was, in principle, not affected by the above restrictions even under the previous regime. However, compliance requirements could still apply in that context.

Changes introduced by the Fondsrisikobegrenzungsgesetz

Initially, the ministerial draft of the Fondsrisikobegrenzungsgesetz proposed removing the permissibility requirements and investment limits for loan origination, while at the same time subjecting registered KVGs—regarding compliance—to the same standards as fully authorised KVGs. The aim was to ensure that small managers engaging in loan origination have adequate organisational structures and appropriate risk and liquidity management systems.

This approach was criticised by parts of the financial industry. For example, the Bundesverband Alternative Investments (BVAI) described the proposal as “pure gold-plating”. In BVAI’s view, the registration thresholds and leverage limits applicable to registered KVGs already prevent any systemic relevance for the credit markets.

The Federal Government took this criticism into account and, in its legislative draft, deleted section 2(4) sentence 1 no. 4 KAGB (old version) without replacement. The Government argues that additional requirements could reduce the competitiveness of German providers compared to providers in other Member States. It also points to the absence of systemic risk, given that the growth of such funds is inherently limited. Moreover, increased investor protection is seen as unnecessary because retail investors are not permitted to invest in these structures.

As a result, small/registered KVGs will be able to originate loans without specific permissibility requirements or investment limits and without the loan-origination-specific compliance requirements described above.

For AIFs that are additionally recognised as Unternehmensbeteiligungsgesellschaften, or for EuVECA / EuSEF funds, the relevant specific restrictions continue to apply.

Planning to register a German KVG (KVG light) and launch a debt fund?

Get in touch—we support you throughout the process, including:

• Establishment of an internal or external KVG structure

• Launch of an open-ended or closed-ended Special AIF structured as KG, InvKG, GmbH, AG or InvAG

• Preparation of fund documentation (fund rules/terms, subscription documents, disclosures, etc.)

• Registration and communication with BaFin

• Provision of a compliance and AML manual

• Structuring and drafting of loan agreements

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Contact: Attorney-at-law Dr Hendrik Müller-Lankow.