Loan by loan the retention is small. Across a fund that keeps transferring loans it originated, it builds into a sixth of the fund, held for as long as the loans run.
AIFMD II requires a fund that originates a loan and then transfers it to keep 5 per cent of that loan's notional value, until maturity or for at least eight years if the loan is longer. Loan by loan, it is a small number: 2.5 million on a 50 million loan. Across a fund that regularly sells loans it has originated it compounds: an illustrative fund transferring 200 million a year of five-year loans it originated ends up holding 50 million of retained slices, 16.7 per cent of its 300 million NAV.
Worked in full in The AIFMD II Handbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Directive (EU) 2024/927 brings a retention requirement to loan-originating funds that echoes the securitisation rules: no pure originate-to-distribute. The AIFM must ensure that the fund retains 5 per cent of the notional value of each loan it has originated and subsequently transferred to third parties. The retention runs until the loan matures for loans of up to eight years, and for at least eight years for longer loans. For a fund that holds most of each loan anyway, the rule changes nothing. For a fund that rotates or sells down a large share of what it originates, it changes the balance sheet. A pure originate-to-distribute model is not an option at all: the directive separately prohibits AIFs whose investment strategy, in whole or in part, is to originate loans with the sole purpose of transferring them to third parties. The retention applies to the transfers that remain permitted.
| Input | Value |
|---|---|
| Net asset value | 300.0 |
| Origination a year | 200.0, as 4 loans of 50.0 |
| Loan maturity | 5 years |
| Transfers | Each such loan later sold whole |
| Retention required | 5% of notional |
| Retention period | To maturity, or at least 8 years for longer loans |
| Loan yield | 9.0% |
Retained per loan = 5% × notional at origination = 5% × 50.0 = 2.5
Retention period = MIN(maturity, 8 years) for a loan of up to eight years, at least 8 years for a longer one
Steady-state retained stock = annual origination sold × 5% × retention period = 200.0 × 5% × 5 = 50.0
In Excel, per loan: =B2*MAX(0.05-C2,0), where B2 is the notional and C2 the share the fund planned to keep, gives the extra amount it must hold. For the stock, sum the retained amounts of every transferred loan whose retention period has not ended.
| Year | Retained stock | % of NAV |
|---|---|---|
| 1 | 10.0 | 3.3% |
| 2 | 20.0 | 6.7% |
| 3 | 30.0 | 10.0% |
| 4 | 40.0 | 13.3% |
| 5 onwards | 50.0 | 16.7% |
Each year the fund retains 10.0 million of the 200.0 million it sells. Because each slice must stay until its loan matures, five years of slices are on the balance sheet at any time once the programme is mature: 50.0 million, a sixth of NAV. This is not a loss. The retained slices earn the loan yield, 4.5 million a year at 9.0 per cent, and they align the fund with the buyers of its loans, which is the purpose of the rule. But it is capital the strategy did not plan to hold, it is concentrated in the loans the fund chose to sell, and it has to be financed, monitored, valued and reported like any other position.
The retention is on the notional of the loan the fund originated, not on the part it sells. Selling 95 per cent of a 50.0 million loan and keeping 2.5 complies exactly. Selling 97 per cent keeps only 1.5, and the fund must keep 1.0 more: the maximum sale is 47.5, however the transfer is documented.
| Loan maturity, years | Minimum retention period, years | Retained stock | % of NAV |
|---|---|---|---|
| 3 | 3 | 30.0 | 10.0% |
| 5 | 5 | 50.0 | 16.7% |
| 7 | 7 | 70.0 | 23.3% |
| 10 | 8 | 80.0 | 26.7% |
| 12 | 8 | 80.0 | 26.7% |
| Planned sale | Kept | Extra to retain | Maximum sale |
|---|---|---|---|
| 100% | 0.0 | 2.5 | 47.5 |
| 97% | 1.5 | 1.0 | 47.5 |
| 95% | 2.5 | 0.0 | 47.5 |
| 80% | 10.0 | 0.0 | 40.0 |
Longer loans raise the stock until the eight-year minimum takes over; a fund may of course hold longer. A closed-ended fund also has to set the retention period against its own term: a seven-year loan sold in year four of an eight-year fund would need its slice held to year eleven. The directive exempts certain sales from the requirement, including sales of assets to redeem units as part of the fund's liquidation, sales needed to comply with EU restrictive measures or product requirements, sales needed to implement the investment strategy in the investors' best interests, and sales due to a deterioration in the loan's risk that the buyer is told about. The rule applies from 16 April 2026, and loans originated before 15 April 2024 are outside it. Each exemption is a judgement to document at the time of the sale, not a default.
Measuring retention at portfolio level. Suppose the fund keeps 20 per cent of two of its four loans a year and sells the other two whole. It holds 20.0 million of the 200.0 million it originated, 10.0 per cent, comfortably above 5. It is still in breach on two loans, which needed 5.0 million retained between them and have none. The requirement is per loan, and the monitoring has to be per loan: a register of every transferred loan with its notional, the share kept, the retention end date and any exemption relied on.
Retain 5 per cent of each transferred loan's notional, to maturity or for at least eight years: 2.5 million per 50 million loan, and 50.0 million, 16.7 per cent of NAV, for this fund's transfers at steady state. Model the stock before choosing the strategy. Whether a fund is loan-originating in the first place is worked in the 50 per cent test, and the free workbook for this case computes the AIFMD II tests for your own funds.
Per loan: 5 per cent of the notional value of each loan originated and transferred. A fund that keeps 20 per cent of two loans and sells two others whole holds 10.0 per cent of what it originated overall and is still in breach on the two loans sold whole, which needed 5.0 million retained between them.
Until the loan matures, for loans of up to eight years, and for at least eight years for longer loans. For a fund transferring 200.0 million a year, the steady-state retained stock is 30.0 million with three-year loans, 50.0 million with five-year loans and 80.0 million for loans of ten years held for the eight-year minimum.
Not unless an exemption applies. Selling 97 per cent of a 50.0 million loan leaves 1.5 million, short of the 2.5 million that 5 per cent of notional requires, so the maximum sale is 47.5 million, or 95 per cent.
This article is one calculation from The AIFMD II Handbook. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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