AIFMD II (Alternative Investment Fund Managers Directive) is changing how limited partners assess operational risk.
Even where UK-based general partners are not directly subject to EU regulation, the directive is materially raising expectations around delegation oversight, liquidity risk management, supervisory reporting and loan origination controls.
AIFMD II is the EU's updated rulebook
AIFMD II is the EU's updated rulebook for alternative investment fund managers that comes into force in April 2026 and, while not directly binding on UK firms post-Brexit, is reshaping how investors assess operational risk across delegation, liquidity governance and loan origination.
This matters because LP (limited partners) due diligence has shifted from reassurance to evidence. In operational reviews, LPs increasingly focus on whether controls operate consistently in practice: who is in scope, what checks are run, how often they are refreshed, what triggers escalation, and how decisions are recorded and retained.
LPs are the investors in a fund
LPs (limited partners) are the investors in a fund and assess risk through operational due diligence, while GPs (general partners) manage the fund and are responsible for running and evidencing controls in practice.
"We think this is reasonable" is no longer sufficient if it cannot be backed by documentation and audit trails. This is where platforms such as YOONO are increasingly used to standardise diligence workflows and retain the evidence LPs expect to see.
The direction of travel on both sides of the Channel
HM Treasury's consultation on the future of the UK AIFM (Alternative Investment Fund Managers) regime makes clear that the UK is reconsidering, not abandoning, a framework originally harmonised with the EU under AIFMD in 2013.
At the same time, EU Member States must apply most AIFMD II measures from 16 April 2026, with further supervisory reporting requirements following in April 2027.
This timing is already shaping LP diligence expectations around documented, repeatable processes with retained evidence.
What "readiness" means here: the ability to prove the operating model
In an AIFMD II diligence context, readiness is not a single policy document. It is the ability to produce consistent, source-backed evidence that controls are real and operating.
At a minimum, LPs will expect firms to demonstrate that:
AIFM Responsibilities are clearly allocated and governed across the EU AIFM, any UK delegate(s), and key service providers
Controls are repeatable, with named owners, defined frequencies and recorded outputs
Fund documentation reflects how the firm actually operates
Required data can be produced consistently, including historical evidence, not just a point-in-time view
This emphasis on evidence is embedded in AIFMD II itself, particularly in its approach to delegation oversight and structured reporting.
The three pressure points LPs will probe
1) Delegation oversight: show me the monitoring, not the org chart
Delegation is normal in alternative investment structures. What is changing is the level of detail regulators expect EU AIFMs to maintain, and LPs increasingly request, when assessing oversight.
Under AIFMD II, delegation reporting extends beyond structure to include resourcing, monitoring capacity, review cadence and remediation outcomes.
In practice, this prompts LPs to request the underlying evidence: oversight plans, completed due diligence reviews, issue logs, remediation tracking and sign-offs. LPs are looking for clarity in operational process and data retrieval. Firms increasingly use platforms like YOONO to centralise this evidence and demonstrate that controls are operating, not just documented.
Example
A mid-market private equity GP (General Partner) delegates fund administration to a third-party provider. During LP (Limited Partner) due diligence, the investor requests evidence of the last three quarterly oversight reviews, including issue identification and resolution timelines. The GP cannot produce these records because reviews were conducted verbally. The LP flags this as a material control gap.
2) Liquidity governance: LPs expect decisions to be usable, not theoretical
For open-ended alternative investment funds, AIFMD II raises the baseline for liquidity governance. Managers must pre-select at least two liquidity management tools from the harmonised list, ensure they fit the fund's strategy and redemption terms, and document how and when they are used.
LPs expect clarity on who makes liquidity decisions, what triggers activation, how investors are informed and how decisions are recorded.
Even where flagship funds are closed-ended, LPs often treat liquidity governance as a proxy for operational maturity, particularly for evergreen, feeder or semi-liquid vehicles.
If gates or notice periods exist on paper but there is no internal playbook or audit trail, this is unlikely to be viewed as a minor gap. Tools like YOONO enable firms to maintain decision logs and demonstrate that liquidity governance is embedded in operations, not just described in policy.
Example
A credit fund with quarterly liquidity offers has documented two liquidity management tools in its offering document. During operational due diligence, the LP (Limited Partner) asks for the decision log showing when the tools were last reviewed and tested. The GP (General Partner) confirms the tools exist but cannot show when or how they would be deployed. The LP concludes that liquidity governance is not operationally embedded.
3) Private credit and loan origination: clearer guardrails, sharper questions
AIFMD II introduces a more explicit framework for loan origination by AIFs, requiring AIFMs to implement effective policies and processes for loan granting, credit risk assessment and ongoing monitoring, with at least annual review.
It also introduces constraints that LPs increasingly translate into diligence questions, including:
Concentration limits for certain borrower types, capped at 20 per cent of AIF capital per borrower
Leverage limits of 175 per cent for open-ended and 300 per cent for closed-ended loan-originating AIFs
Restrictions on originate-to-distribute strategies, including a 5 per cent risk retention requirement
Platforms like YOONO address both issues by standardising workflows and creating audit trails that reduce answer drift and close evidence gaps. LPs increasingly benchmark responses against structured frameworks such as ILPA's DDQ.
Manual processes fail at fundraising scale
AIFMD II pushes firms towards structured, repeatable artefacts: periodic review records, issue logs, resourcing evidence, tool selection rationales and measurable guardrails.
Where operating models rely on ad hoc spreadsheets or individual memory, two issues emerge quickly during fundraising:
Answer drift, where the same question is answered differently by IR, compliance and investment teams.
Audit-trail gaps, where decision-making, approvals and remediation cannot be clearly evidenced.
LPs increasingly benchmark responses against structured frameworks such as ILPA's DDQ.
What good looks like: four readiness markers
Delegation oversight and remediation are documented and repeatable with clear review schedules, named owners, issue tracking and closed-out remediation visible to LPs on request.
Liquidity governance and loan origination controls are evidenced operationally with decision logs, test scenarios, monitoring outputs, concentration tracking and leverage reporting updated regularly.
Fund documentation aligns with operating reality so that what is disclosed matches what can be demonstrated.
Data requests can be answered within days, not weeks because the infrastructure already retains the required records.
How YOONO supports AIFMD II readiness
YOONO helps fund managers demonstrate operational readiness by standardising due diligence workflows and retaining source-linked evidence that LPs expect to see.
For delegation oversight, YOONO enables firms to track and evidence third-party monitoring activities, creating audit trails that show oversight is consistent and repeatable.
For loan origination and concentration risk, YOONO provides a structured way to evidence underwriting standards, portfolio monitoring and compliance across multiple vehicles.
By centralising evidence and reducing manual inconsistency, YOONO supports firms in building the operational credibility that AIFMD II demands.
LPs are underwriting repeatability
AIFMD II is a forcing function. It turns "we believe our controls are reasonable" into "show us the record".
Firms that come through diligence cleanly tend to share one characteristic: their operating model is designed to be evidenced. They can show oversight, decisions and remediation without last-minute reconstruction.
YOONO fits naturally into this conversation. AIFMD II readiness is not only about policies. It is about defensible execution. YOONO supports that by helping firms standardise diligence, retain source-linked evidence and reduce the inconsistency that manual processes introduce.