UK AIFM Reform: Three Questions Real Asset Fund Sponsors And Investors Should Be Asking Now

Real assets are built around a simple proposition: investors commit long-term capital to assets that cannot be bought and sold overnight.

Whether the asset is a build-to-rent portfolio, student accommodation platform, renewable energy project, infrastructure asset or private credit strategy backed by real estate, success depends on aligning investor expectations with the realities of ownership, valuation and liquidity.

The FCA’s proposed overhaul of the UK alternative investment fund manager (AIFM) regime raises exactly those questions. While the consultation is framed as regulatory reform, many of the proposals are ultimately about whether a fund’s structure, governance and investor commitments work together in practice.

For sponsors and investors alike, the consultation creates an opportunity to look beyond compliance and ask a broader question: will existing arrangements remain fit for purpose as businesses grow and market conditions change?

1. Will our regulatory model still work as the business grows?

The FCA proposes three categories of UK AIFM, determined principally by the aggregate net asset value (NAV) of the relevant funds and schemes managed.

Under the proposals;

• Small AIFMs would have aggregate NAV of up to GBP 750 million;
• Medium AIFMs would have aggregate NAV above GBP 750 million and up to GBP 5 billion, and;
• Large AIFMs would have aggregate NAV above GBP 5 billion.

This would replace the current AUM-based statutory thresholds and the associated distinction between full-scope and sub-threshold AIFMs. The rules a manager must follow would depend not only on its size, but also on the types of funds it manages and the risks those funds present.

For a real asset sponsor, the practical exercise is to map existing and planned vehicles against the proposed thresholds. A successful fundraising, acquisition programme or sustained increase in asset values could affect a manager’s categorisation. The question is not simply whether a structure works today, but whether it will continue to work as the platform expands.

There is a further point for some property fund managers. HM Treasury proposes to remove the registration route for most firms currently relying on it. Relevant managers of unauthorised property collective investment schemes would generally need to obtain FCA authorisation unless another exemption or retained registration category applies. No general grandfathering of registered status is proposed. Those businesses should assess their position early, particularly where future fundraising or product launches form part of their growth strategy.

2. Does our liquidity promise match the assets we own?

Real estate and infrastructure assets often take months rather than days to sell. Debt positions secured against real assets can also become less readily realisable in stressed conditions. Yet investors will often focus on redemption rights and liquidity terms at the point they commit capital.

The FCA’s proposals place renewed emphasis on ensuring that a fund’s liquidity profile is consistent with the nature of its assets. Its draft guidance gives a simple but helpful example: a fund with 50% of the value of its scheme property invested in inherently illiquid assets would not have an aligned liquidity profile if it offered redemptions without either a notice period or another mechanism restricting liquidity.

The precise application will depend on the vehicle and the final rules. In particular, the proposed requirements differ materially across open-ended funds, leveraged closed-ended funds and unleveraged closed-ended funds.

For sponsors, the practical challenge is to test whether investor terms remain realistic when markets become difficult. What happens if asset sales take longer than expected? What if refinancing becomes more expensive? What if valuation uncertainty and redemption requests arise at the same time?

For investors, the key question is equally straightforward: does the liquidity being offered genuinely reflect the underlying assets? Liquidity tools tend to work best when investors understand in advance how and when they may be used.

Why does this matter particularly for real assets?

Many of the FCA’s proposals will apply across private markets, but some of the practical issues are especially relevant for real asset strategies.

Open-ended property funds and semi-liquid structures must balance investor access to liquidity against the reality that buildings and infrastructure assets often require lengthy sale processes. Strategies investing in build-to-rent, student accommodation, healthcare, later living and other operational real estate sectors may also need to consider how valuation judgments respond to changes in occupancy, operating performance and financing conditions.

Private credit funds secured against real estate face a different challenge. Although the assets may not be owned directly, the value and recoverability of the underlying collateral can influence both liquidity planning and valuation outcomes during periods of market stress.

For sponsors, the common theme is alignment. The closer a fund’s investor terms, valuation approach and liquidity arrangements reflect the characteristics of its assets, the more resilient the structure is likely to be when conditions become challenging.

3. Would our valuation process stand up in a difficult market?

In private markets, valuation is a governance issue as much as a calculation. Appraisals, financial models and professional judgment all play a role, particularly when transaction activity is limited or when an asset’s financing, occupancy or operating performance changes quickly.

The consultation proposes valuation expectations that are calibrated by manager size and activity and emphasises appropriate record keeping, governance and management of conflicts.

For real asset funds, valuation can affect far more than periodic reporting. It may influence subscriptions, redemptions, performance fees, financing arrangements and investor decision-making.

The most useful questions are often the most practical:

• Who can challenge a valuation assumption?
• What events trigger an ad hoc valuation?
• How are conflicts managed when a valuation affects multiple stakeholders?
• How are valuation decisions documented and explained?

Investors are usually more reassured by a process that has been tested in practice than by a policy that simply exists on paper.

An October agenda

Responses to the FCA’s proposed AIFM rules and its prudential discussion chapter are due by 22 October 2026. The FCA’s separate consultation on the proposed FRAME reporting regime also closes on 22 October 2026. HM Treasury’s technical consultation on the draft Alternative Investment Fund Managers Regulations 2026 closes earlier, on 14 October 2026.

Final legislation and FCA rules have not yet been made and the FCA currently envisages implementation of the new regime in 2028.

For sponsors, now is a good time to assess whether existing fund structures, governance arrangements and operating models remain suitable for the next phase of growth.

For institutional investors, it is an opportunity to look beyond headline performance and ask how a fund would operate in a more challenging environment. Questions about liquidity, valuation and governance are often easiest to answer before they are tested.

The success of this reform will ultimately be measured not by the length of the rulebook, but by whether it supports well-governed funds, informed investors and sustainable long-term capital formation. For real asset managers and investors, that conversation should start now.

This article reflects FCA and HM Treasury proposals available as at 1 October 2026. Final legislation and FCA rules may differ from the proposals described above.

Preparing for the proposed reforms

The proposed reforms present an opportunity to review whether your fund structures, governance arrangements and investor terms remain fit for the future.