AIFMs Explained: Core Duties and Rules

Private market strategies are getting more sophisticated, and regulators have tightened expectations around governance, transparency, and oversight. Across Europe, net assets of UCITS and AIFs ended 2024 at EUR 23.4 trillion. That scale helps explain why compliance teams, legal counsel, and EU-based GPs face increasing scrutiny around accountability, especially when structures and service providers span multiple jurisdictions.

In the EU, that accountability is typically anchored by the alternative investment fund manager (AIFM) under the Alternative Investment Fund Managers Directive (AIFMD).

AIFMD is not a checklist to memorize. It is an operating framework that shapes how you manage risk, oversee delegates, report to regulators, and protect investors.

What is an AIFM and why does it matter?

An alternative investment fund manager is the regulated entity responsible for managing one or more alternative investment funds (AIFs). This includes core functions such as portfolio management and risk management, plus broader oversight obligations. In practice, the AIFM is the party regulators look to for clear answers on controls, delegation, reporting quality, and governance.

That clarity matters most for cross-border activity. The AIFM model standardizes expectations across EU member states and provides a consistent basis for supervision.

What is an AIFM and why does it matter?

Private equity and real estate structures often create operational complexity, not just legal complexity. Valuation frequency varies by asset type, cash flows can be uneven, and delegation chains can be long. AIFMD recognizes this reality by requiring oversight that can stand up to regulatory review even when tasks are outsourced.

For professional investors, strong AIFM oversight is also a due diligence signal. A well-designed model reduces key-person operational risk and can make fundraising conversations smoother.

If you want to see how operating support is typically structured by strategy, explore Private Equity Fund Services and Real Estate Fund Services.

Core Duties of an AIFM

Most AIFM duties sit in three areas: risk management, portfolio management, and compliance. The setup varies by strategy and jurisdiction, but one principle is constant: delegation does not remove responsibility.

Risk management

AIFMD expects risk management to be structured, independent, and provable. The AIFM should maintain risk policies, monitor limits, and document how risk controls are kept appropriately separate from portfolio decision-making.

In private equity, this often translates into concentration monitoring, pipeline governance, and consistent assessment of value-creation and downside risk across portfolio companies. In real estate, it can mean stress-testing assumptions tied to occupancy, refinancing, and liquidity timelines.

Portfolio management

Portfolio management is the investment decision framework and the discipline of staying within the fund’s mandate. Under AIFMD, the AIFM is accountable for this function directly or through delegation arrangements that still require oversight.

Delegating to an investment manager can be efficient, but it can also create blind spots if responsibilities and controls are unclear. Effective AIFM oversight typically includes:

• Monitoring investment guideline compliance and breach handling
• Tracking conflicts of interest and personal account dealing controls
• Reviewing delegate performance and resourcing
• Maintaining clear escalation and remediation processes

Compliance

Compliance spans governance, policies, conflict management, and regulatory obligations, especially reporting. That is where aligning fund administration and AIFM responsibilities can help—particularly when reporting inputs, valuation workflows, and service-provider monitoring need to connect cleanly across teams. To see how Alter Domus frames this operating approach, visit AIFM Services.

Regulatory Requirements of AIFMD

AIFMD requirements tend to surface through recurring workstreams that drive compliance calendars, audit questions, and regulator engagement.

Reporting

Transparency reporting is a core AIFMD obligation. ESMA’s guidelines explain how reporting should be approached and interpreted, including reporting frequency and the information expected under the Directive.³

Many firms use “Annex IV reporting” as shorthand, but the real challenge is operational: data must be consistent, traceable, and reviewable. Legal and compliance teams need defensible sign-offs supported by documented controls. The UK FCA’s guidance on Annex IV reporting is often used as a practical reference point for how these obligations are handled in supervisory contexts.

Depositary

AIFMD includes a depositary framework intended to strengthen oversight and asset safeguarding. In private assets, the mechanics differ from traditional custody, but the governance expectations still apply.

For private assets, the mechanics differ from traditional custody, but the governance expectations still apply. For context on how depositary support can be structured operationally, see Depositary Services.

Leverage

AIFMD requires a clear approach to leverage, including how it is calculated, monitored, and disclosed. For hedge funds and certain real estate strategies, this can be a central risk topic. For private equity, leverage may be more indirect (for example, through portfolio company financing and fund-level facilities), but leverage governance still needs to be clear and documented.

Valuation rules

Valuation is a consistent focus area in private markets, especially in volatile periods. AIFMD emphasizes valuation policies, governance, and appropriate independence.² It does not mandate one methodology. It does require that your process is repeatable, controlled, and supported by evidence that an auditor or regulator can follow.

AIFM vs. Fund Manager: What’s the Difference?

This distinction matters in cross-border AIF structures:

• The AIF is the fund vehicle.
• The investment manager (or adviser) may make day-to-day investment decisions.
• The alternative investment fund manager (AIFM) is the regulated entity with overall responsibility under AIFMD, including oversight of delegation and compliance with the Directive.

A common misconception is that the AIFM replaces the investment manager. In many models, the investment team retains its investment role, while the AIFM provides the regulated framework and supervisory controls that regulators expect.

Do you need to appoint and AIFM?

Often, yes. Whether you need a fully authorized AIFM depends on your structure, fund domicile, and whether you fall within exemptions.

Thresholds and exemptions

AIFMD sets thresholds commonly used to assess “sub-threshold” status. The Directive includes thresholds such as:

• EUR 100 million for AIFMs managing leveraged AIFs
• EUR 500 million for AIFMs managing only unleveraged AIFs with no redemption rights for five years

Even when a lighter regime applies, obligations do not disappear. Registration requirements and reporting expectations can still apply depending on the activity and jurisdiction.

Third-party vs. in-house AIFMs

Once you determine you need an AIFM model, the next decision is usually to build or partner.

In-house AIFM models can work well for managers with scale, stable products, and mature compliance infrastructure. They require ongoing investment in governance, staffing, systems, and regulator engagement.

Third-party AIFM models can reduce time-to-market and provide an established framework for oversight. They are commonly used when cross-border distribution is a priority, or when internal teams want to stay lean while still meeting regulatory expectations.

Jurisdiction also matters. Luxembourg and Ireland are two of the most common AIFM domiciles for EU fundraising and oversight models. See AIFM Services Luxembourg for local coverage and context.

Practical takeaway for compliance and operating teams

AIFMD compliance is easier when the operating model is designed to produce evidence, not just outcomes. The AIFM framework is ultimately about accountability. It connects investment strategy to risk controls, reporting discipline, valuation governance, and service-provider oversight.

Want to pressure-test your AIFM operating model? Alter Domus can help you design oversight and reporting workflows that stand up to regulator scrutiny—without adding unnecessary complexity. Speak with our team to discuss your structure, delegation model, and AIFMD reporting needs.