An AI vendor is rarely an AIFMD II delegation, and almost always a DORA register entry.
Important takeaways.
- Delegation under Article 20 of the AIFMD attaches to the functions listed in Annex I. Those are portfolio management, risk management, administration, marketing, and activities related to the assets of the fund. Software used by a manager's own staff carries out none of them.
- An AI arrangement becomes a delegation when a third party carries out the function rather than supplies a tool. Valuation and pricing, regulatory compliance monitoring and record keeping are Annex I administration. A service that produces those outputs is a delegation whatever it is called.
- AIFMD II has applied since 16 April 2026. The supervisory reporting it rewrites in Article 24 applies a year later, from 16 April 2027, and reaches delegation of portfolio management or risk management only.
- The new Article 24(2)(d) asks for the number of full time equivalent staff a manager employs to monitor its delegation arrangements. It also asks for the number and dates of periodic due diligence reviews, the issues found and the measures adopted.
- DORA has applied since 17 January 2025 and lists managers of alternative investment funds in Article 2(1)(k). Managers registered under Article 3(2) of the AIFMD sit outside it. The asset class makes no difference to either point.
- The DORA register of information under Article 28(3) covers every contractual arrangement for the use of ICT services. There is no materiality threshold. Criticality changes which further obligations apply, not whether the contract is listed.
Transposition closed on 16 April 2026. Directive (EU) 2024/927, AIFMD II, applies across the European Union, and it tightened the delegation rules. So the question now arrives with every new vendor: is this a delegation, and do we have to tell the regulator?
This guide answers for the European Union, and for the alternative fund managers inside it: private equity, real estate, infrastructure and hedge funds. Most AI arrangements are not delegations. Nearly all of them are still reportable, under a different regime, and that one has no materiality threshold.
Delegation attaches to a list, and the list is Annex I.
Article 20(1) of the AIFMD catches a manager that intends to delegate to third parties the task of carrying out functions on its behalf. The functions are those in Annex I. Point 1 is portfolio management and risk management. Point 2 is administration, marketing, and activities related to the assets of the fund.
Administration is itemised rather than open ended. It covers fund accounting, valuation and pricing, regulatory compliance monitoring, the unit holder register and record keeping. AIFMD II added loan origination and the servicing of securitisation special purpose entities to the same point.
A tool does not carry out a function. Where an analyst drafts the investment committee paper with an assistant and signs it, the manager performed the function and used software to do it. Nothing was conferred on anyone. That is the ordinary case, and why most AI inside a manager never reaches Article 20.
The Directive carves out by express words rather than by implication, which supports reading the perimeter narrowly. AIFMD II added Article 20(6a) to put marketing by a MiFID distributor acting on its own behalf outside the delegation rules. The legislator wrote that exclusion down. It wrote none for software, because software was never inside.
Where an AI arrangement does cross the line.
The test is whether a third party carries out the function, not whether a model is involved. Three patterns cross it.
- A vendor that produces the output and leaves the manager to review it is carrying out an Annex I function. The risk report, the valuation and compliance monitoring are all on that list.
- Where the vendor's own staff run the workflow, the arrangement is outsourced administration whatever the product page calls it.
- The deal seam is Annex I, point 2(c). It covers advice to undertakings on capital structure and industrial strategy, and advice and services relating to mergers and the purchase of undertakings. A private equity manager buying diligence as a service should read that line before assuming it is buying a tool.
Where an arrangement is a delegation, Article 20(1) requires notification to the home competent authority before it takes effect. Portfolio or risk management can go only to an undertaking authorised or registered for asset management, or with the regulator's prior approval. AIFMD II added Article 20(3a), which requires the manager to ensure those functions are performed in compliance with the Directive irrespective of the regulatory status or location of any delegate. Article 20(3) still bars a structure that leaves the manager a letter-box entity.
DORA has no materiality threshold for the register.
This is the obligation managers miss, because they look under the fund rules rather than the operational ones. Regulation (EU) 2022/2554, DORA, has applied since 17 January 2025. Article 2(1)(k) lists managers of alternative investment funds as financial entities. Sub-threshold managers registered under Article 3(2) of AIFMD are outside it.
Article 28(3) requires a register of information covering all contractual arrangements on the use of ICT services. Article 3(21) defines those as digital and data services provided through ICT systems to internal or external users on an ongoing basis. An AI assistant is one. So is the model provider sitting behind it.
Criticality changes what else applies, not whether the contract is listed. The register must separate arrangements supporting a critical or important function, defined in Article 3(22), from those that do not. Article 28(4) requires an assessment before signing. Article 30(2) sets minimum contract terms for every ICT arrangement, including where data is processed and how it is recovered and returned on termination or insolvency. That is the same ground as the exit and deletion question, arriving as a contract term rather than a request.
Managers also report at least yearly on new ICT arrangements and the categories of provider. The common gap is a pilot nobody signed a contract for. There is a contract: the vendor's standard terms.
From 16 April 2027 the reporting asks who is watching.
Article 1(12) of AIFMD II rewrites the supervisory reporting in Article 24, and it applies from 16 April 2027 rather than from transposition. The new Article 24(2)(d) asks for delegation detail that is operational rather than structural.
It reaches delegation of portfolio management or risk management only, so an ordinary software contract stays outside it. For each delegate it asks for name and domicile, close links, authorisation status and supervisor, the activities delegated, the share of fund assets under delegated portfolio management, and the start and end dates. Sub-delegates get the same treatment. Two items are different in kind. The first is the number of full time equivalent staff the manager employs to monitor the arrangements. The second is the number and dates of the periodic due diligence reviews, the issues found, and the measures adopted.
A regulator asking for review dates and issue lists wants to watch the oversight happen, not read the policy describing it. That is the same move APRA made in CPS 230, approached from a different direction.
The register is easy. The record behind it is not.
Our position is that the classification question is the small one, and it usually resolves the same way. Write the register, keep it current, and stop arguing about whether a licence is a delegation.
The harder duty is older than any of this. Article 18(1) of the AIFMD has required since 2011 that a manager's internal controls let each transaction involving the funds be reconstructed. The Directive says what that means: its origin, the parties to it, its nature, and the time and place at which it was effected. AI makes that harder in one specific way. Where it arrived workflow by workflow, through a licence here and a browser extension there, the manager cannot say which system touched which paper. The register is then assembled from memory, and the reconstruction has nothing to draw on.
Where AI runs through a single layer that records the system, the model and the material behind each output, the register and the reconstruction are read off the manager's own records. None of these regimes requires that architecture. Each assumes someone can answer, and that answer cannot be built after the fact. A manager with EU exposure should also check its position under the AI Act, which asks a different question again.
Primary sources: Directive 2011/61/EU, Directive (EU) 2024/927 and Regulation (EU) 2022/2554. This guide is general information, not legal advice. Whether a particular arrangement is a delegation depends on the facts, on how each member state transposed the Directive, and on the position its competent authority takes.
Questions this guide answers.
Is an AI vendor a delegation under AIFMD II?
Usually not. Article 20 of the AIFMD attaches to the functions set out in Annex I, and a tool used by a manager's own staff carries out none of them. The position changes where the vendor produces the output and the manager only reviews it, or where the vendor's own staff run the workflow. Valuation and pricing, regulatory compliance monitoring and record keeping all sit in Annex I, so a service doing those is a delegation however it is sold.
Do we have to tell our regulator that we use AI?
Through DORA rather than through the delegation rules, in most cases. Article 28(3) of DORA requires a register of all contractual arrangements for the use of ICT services, and an AI assistant is an ICT service under the Article 3(21) definition. Managers report at least yearly on new arrangements and provider categories, and must hand over the full register on request. An Article 20 notification is needed only where the arrangement is genuinely a delegation.
What changes on 16 April 2027?
The supervisory reporting in Article 24 of the AIFMD, rewritten by Article 1(12) of Directive (EU) 2024/927. It applies a year after the rest of AIFMD II, and reaches delegation of portfolio management or risk management only. For each delegate it asks for identifiers, the activities delegated and the share of fund assets involved. It then asks for the staff the manager uses to monitor the arrangement, and the dates and findings of its due diligence reviews.
Does DORA apply to a private equity or real estate fund manager?
Yes, where the manager is authorised under the AIFMD. Article 2(1)(k) of DORA lists managers of alternative investment funds as financial entities, and the regulation has applied since 17 January 2025. Sub-threshold managers registered under Article 3(2) of the AIFMD are carved out. Asset class makes no difference, so private equity, real estate, infrastructure and hedge fund managers are treated alike.
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This guide is general information, not advice. Factual claims that rely on public sources link to those sources in the text. Practical guidance also draws on patterns Levercon observes across Australian credit funds. No client is named and no figure is attributed to one. Written by Levercon, reviewed before publication and revised in place as the facts change.