Alternative Investment Funds (AIF): What They Are and How They Are Regulated
Alternative investment funds (AIFs) are collective investment vehicles that pool capital from several investors and invest it under a defined policy, but outside the rules that govern mainstream retail funds. In Europe the term has a precise legal meaning: under the Alternative Investment Fund Managers Directive (AIFMD), any collective investment undertaking that is not a UCITS fund is an AIF. Hedge funds, funds of hedge funds, private equity, private debt and real estate funds all typically fall into this category.
This guide explains what an alternative investment fund is, how AIFs are regulated in the EU and Switzerland, how they differ from UCITS funds, and what investors should check before allocating to one.
What Is an Alternative Investment Fund?
An alternative investment fund is a pooled investment vehicle that raises capital from a number of investors and invests it according to a defined investment policy for their benefit, without being authorised as a UCITS fund. That is, almost word for word, the definition in Article 4 of Directive 2011/61/EU (AIFMD).
The definition is deliberately broad. It does not describe an asset class or a strategy; it describes a regulatory status. What unites AIFs is that they can do things UCITS funds are restricted from doing — use higher leverage, hold illiquid assets, concentrate positions, short-sell more freely or offer less frequent dealing. The alternative investment universe they give access to is described in more detail in our article on alternative investments beyond traditional asset classes.
Types of alternative investment funds
- Hedge funds — liquid or semi-liquid strategies such as long/short equity, global macro or event driven. How they work is explained in our guide Hedge Funds Explained.
- Funds of hedge funds — vehicles that allocate to several hedge fund managers at once.
- Private equity and venture capital funds — usually closed-ended, with capital locked up for many years.
- Private debt and loan-origination funds — funds that lend directly to companies.
- Real estate and infrastructure funds — real assets with long holding periods.
- ELTIFs — European Long-Term Investment Funds, a specific EU label for long-term AIFs that can be distributed more widely under strict conditions.
How Are Alternative Investment Funds Regulated?
In the EU, alternative investment funds are regulated mainly through their managers rather than the funds themselves. The AIFMD requires the alternative investment fund manager (AIFM) to be authorised and to meet rules on capital, organisation, risk and liquidity management, valuation, depositary arrangements, reporting to regulators and disclosure to investors.
Once authorised, an EU AIFM can market its EU AIFs to professional investors across the EU through the AIFMD marketing passport. Marketing to retail investors is left largely to national law, which is why many AIFs are available only to professional or qualified investors.
What changes with AIFMD II?
The directive was revised by Directive (EU) 2024/927, often called AIFMD II, which entered into force on 15 April 2024. Member States had to transpose it into national law by 16 April 2026. The main changes are:
- Loan origination: an EU framework for funds that lend directly, including leverage limits and a general preference for closed-ended structures.
- Liquidity management tools: each open-ended AIF must select at least two liquidity management tools, such as redemption gates, notice periods or swing pricing. According to law firm Jones Day, compliance with the related technical standards is not mandatory until 16 April 2027.
- Delegation and substance: more detailed rules and supervisory reporting when managers delegate portfolio or risk management.
Alternative investment funds and Switzerland
Switzerland is not part of the EU and does not apply the AIFMD directly. Swiss funds are governed by the Collective Investment Schemes Act (CISA) and supervised by FINMA, while Swiss managers marketing into the EU must follow EU and national rules. How Swiss hedge fund structures work in practice is covered in our article on Swiss hedge funds.
AIF vs UCITS: What Is the Difference?
The difference between an AIF and a UCITS fund is the regulatory framework: UCITS funds follow a harmonised product rulebook designed for retail investors, while AIFs are defined as everything that sits outside that rulebook. In practice the two frameworks lead to different risk, liquidity and access profiles.
Feature | UCITS fund | Alternative investment fund (AIF) |
|---|---|---|
Legal basis (EU) | UCITS Directive 2009/65/EC | AIFMD 2011/61/EU, as amended by 2024/927 |
What is regulated | The fund product in detail | Mainly the manager (AIFM) |
Typical investors | Retail and professional | Mostly professional or qualified investors |
Liquidity | Frequent dealing, often daily | From daily to closed-ended, depending on strategy |
Leverage and concentration | Strictly limited | Permitted within disclosed limits |
Typical strategies | Equity, bond, multi-asset; some liquid alternatives | Hedge funds, private equity, private debt, real estate |
Some hedge fund strategies are offered in UCITS form as "liquid alternatives", accepting tighter limits in exchange for wider distribution. The trade-offs of that approach are discussed in our article on liquid alternative funds.
An AIF label tells an investor how a fund is regulated, not how risky or how good it is. The strategy, the manager and the terms still have to be assessed one by one.
Who Can Invest in Alternative Investment Funds?
Most alternative investment funds are open only to professional or qualified investors, such as pension funds, insurers, family offices and wealthy individuals who meet the legal criteria. Retail access exists in some countries and through specific structures such as ELTIFs, but it comes with additional safeguards.
Minimum investments, eligibility checks and subscription documents are typical features of the process. What to expect in practice is described in our guide on how to invest in hedge funds, and the legal background in different jurisdictions in our article Are Hedge Funds Legal?.
What to Check Before Investing in an AIF
Before investing in an alternative investment fund, an investor should understand the vehicle as well as the strategy. Five points deserve particular attention:
- Manager authorisation: who the AIFM is, where it is authorised and by which regulator.
- Liquidity terms: dealing frequency, notice periods, lock-ups and the liquidity management tools the fund can activate.
- Leverage and risk limits: how leverage is measured and what limits apply.
- Service providers: depositary, administrator and auditor, and their independence from the manager.
- Fees: management and performance fees, and how they affect the net return.
Comparing these points across fund types — hedge funds, mutual funds, private equity — becomes easier with the framework set out in our article on hedge funds vs mutual funds and private equity.
How AQUIS Capital Approaches Alternative Investments
AQUIS Capital, a Zurich-based asset management boutique licensed by the Swiss Financial Market Supervisory Authority (FINMA), focuses on hedge fund strategies and Emerging Asia. Its multi-strategy approach is applied in the AltAlpha SICAV – Abacorum Fund, a fund of hedge funds investing across long/short equity, long/short credit, global macro and event-driven strategies. How such a portfolio is built is explained in our article What Is a Multi-Strategy Fund of Hedge Funds?. The legal structure, eligible investors and terms of any fund are set out in its official offering documents.
Frequently Asked Questions
What is an alternative investment fund in simple terms?
An alternative investment fund is a pooled fund that is not a UCITS fund. It collects money from several investors and invests it under a defined policy, often in hedge fund strategies, private equity, private debt or real estate.
What does AIFMD stand for?
AIFMD stands for the Alternative Investment Fund Managers Directive, Directive 2011/61/EU. It regulates the managers of alternative investment funds in the EU and was revised in 2024 by Directive (EU) 2024/927, known as AIFMD II.
Is a hedge fund an alternative investment fund?
In the EU, a hedge fund is normally an alternative investment fund, because it is a collective investment undertaking that is not authorised as a UCITS fund. Some hedge fund strategies are also offered in UCITS form as liquid alternatives.
What is the difference between an AIF and an AIFM?
The AIF is the fund itself; the AIFM is the alternative investment fund manager that runs it. Under the AIFMD, the authorisation and most of the regulatory obligations sit with the AIFM.
Can private investors buy alternative investment funds?
Most AIFs are reserved for professional or qualified investors. Retail access depends on national rules and specific structures such as ELTIFs, which carry additional investor protections.
Read more about AQUIS Capital and the team behind it, explore the AQUIS Capital fund range, or contact the team with your questions.
This content is for general information only and is not financial, investment, tax or legal advice. Investments carry risk, including the possible loss of capital. Consult a licensed professional before making decisions.
