The European regulator ESMA started the consultation process on the rules that will apply to alternative investment funds that originate loans and intend to adopt an open-ended structure, i.e. with the right for investors to exit the relevant fund and request a redemption of their shares (link to the document in the comments section). The consultation paper that was published today contains, among other things, a draft of these rules (the so-called “regulatory and technical standards” or “RTS”). They are fortunately relatively short at under 6 pages.

In this context it should be interesting to note that, pursuant to recent industry surveys, only about 25% of Luxembourg debt funds have adopted an open-ended structure, and only a portion of these is originating loans (as opposed to investing into existing ones). Also, when ESMA mentions that a key motivation for the RTS is investor protection, it should be kept in mind that there is currently only a minuscule portion of retail investors in this market segment, and whether the protection of professional investors should be a regulatory priority is debatable.

The consultation process will integrate feedback from the industry and other stakeholders, and can be expected to continue through 2025 until a final text is adopted.