Background

Changes to the AIFMD and UCITS Directives which introduce a harmonised framework for the use of liquidity management tools (“LMTs”) must be implemented into EU member state law by 16 April 2026. The European Securities and Markets Authority (“ESMA”) initiated a consultation on 8 July 2024 on related guidelines (the “Guidelines”) and regulatory technical standards (“RTS”).

Stakeholders are invited to submit comments on the Guidelines and the RTS by 8 October 2024, and ESMA expects to publish the final Guidelines and RTS by 16 April 2025.

We have summarised below some of the key points of the draft Guidelines and RTS.

LMTs and how they are selected for use

The LMTs set out below will be available to AIFMs managing open-ended alternative investment funds (“AIFs”) and UCITS management companies (the “manager”). For the most part, the Guidelines and RTS do not differ significantly in their application to open-ended AIFs and UCITS.

Click below to review the types of LMT and selection criteria.

Governance and disclosure requirements

• The selected LMTs, the methodology for their calibration, as well as the conditions for their selection, activation or deactivation must be detailed in an LMT policy.
• Managers should provide appropriate disclosure on the selection, calibration and conditions for activation, deactivation of the selected and available LMTs in fund documentation or instruments of incorporation, prospectus and/or periodic reports.
• Depositories must implement appropriate verification procedures to ensure that the managers are in compliance with their obligations in respect of the LMTs.

Other noteworthy aspects

• Managers can extend the notice period required for investors to redeem their interests in the fund, without affecting the fund’s dealing frequency or settlement period (e.g., in the case of UCITS this would still mean twice monthly dealing arrangements).
• The RTS contemplate UCITS being able to implement side pockets by way of “physical separation” (i.e., the transfer of the non-side pocketed assets to a new UCITS and the side-pocketed assets remain in the existing UCITS which is put into liquidation) and “accounting segregation” (the side-pocketed assets are allocated to a dedicated share class of the fund).

The RTS and Guidelines will require managers to review their existing funds’ use of LMTs and the disclosure and governance arrangements applicable to them. We will continue to issue updates on this consultation and other aspects of the implementation of AIFMD II and the corresponding changes to the UCITS Directive.

For more information on this topic please contact your usual contact or any member of the Asset Management and Investment Funds Group.