Capital Markets Union: Council agrees its position on updated rules for hedge funds, private debt funds, and other alternative investment funds

To improve the European Capital Markets Union (CMU) and strengthen investor protection, the Council reached agreement on its position (general approach) on a review of the alternative investment fund managers directive, the legislative framework which governs managers of hedge funds, private equity funds, private debt funds, real estate funds and other so-called alternative investment funds in the Union.

With other progress made on the implementation of the CMU agenda, it will contribute to maintaining a competitive and attractive European asset management market and so unlock private investment to finance the green and digital transitions.

The proposal aims at improving the integration of asset management markets in Europe while modernising the framework for key regulatory aspects. It not only updates the alternative investment funds managers (AIFM) directive, but also the rules applicable to undertakings for the collective investment in transferable securities (UCITS), the regulatory framework that allows for the sale of cross-Europe mutual funds.

The proposal has four main objectives:

  • Achieve further market integration for alternative investment funds and therefore a broader capital market integration;
  • Improve companies’ access to more diversified forms of financing;
  • Strengthen investor protection;
  • Enhance the ability of fund managers to deal with liquidity pressure in stressed market conditions.

In its position, the Council stresses the importance of consistent harmonisation in the area of liquidity risk management. In particular, it underlines the need to improve the availability of liquidity management tools, with new requirements on managers to provide for the activation of these instruments. This will help ensure that fund managers are well equipped to deal with significant outflows in times of financial turbulence.

The Council also supports the creation, as proposed by the European Commission, of an EU framework for loan-originating funds, i.e. funds that provide credit to companies, supplemented with several requirements to alleviate risks for financial stability and to ensure an appropriate level of investor protection.

The Council further clarifies the rules for outsourcing and the delegation of certain functions by fund managers to third parties and increases the supervisory cooperation in this area. It also introduces new reporting requirements on delegation arrangements for the purpose of an improved monitoring and supervision of the application of the EU regulatory framework. Precise reporting obligations on outsourcing will reduce the possibilities for creating letterbox companies.

Other key issues for the Council concern the framework for the provision of cross-border services by depositaries, new reporting obligations for UCITS for the purpose of risk monitoring and new transparency rules to enhance investor protection.


The Commission presented its capital markets union (CMU) package – of which this proposal forms part – on 25 November 2021. The capital markets union is the EU’s initiative to create a truly single market for capital across the EU. It aims to get investment and savings flowing across all member states for the benefit of citizens, businesses and investors.

EU economy and finance ministers had an exchange of views on the CMU package at the Ecofin Council of 7 December 2021.

Now that the Council has agreed its position (general approach) on the proposal, it is ready to start trilogue negotiations with the European Parliament in order to agree on a final version of the text.