Implementing a European Liquidity Management Regime for Funds

AIFMD II introduced a new European liquidity management regime for funds.

The market for alternative investment funds in Europe neared 7 trillion Euros by the end of 2022, making AIFMD the most effective tool in achieving the goals of the Capital Markets Union. That is with a growth rate of nearly 15% over the past years, in one with nearly 250 billion in private credit provided to businesses in Europe.  

It does not come as a surprise that, when it came at reopening the legislative process for the mandated second iteration of the directive, there was little that needed fixing within the European alternative investment fund ecosystem. So as not to waste the legislative process, European authorities used AIFMD II as an opportunity to address some shortcomings not exclusive to the existing regulatory architecture of the alternative investment fund management business. Here we have a new European liquidity management regime for funds, which was missing so far, applicable also to UCITS.  

The Legislative Mandate for ESMA  

AIFMD II amended both AIFMD and the UCITS directive introducing provisions to establish a uniform European liquidity management regime applicable to AIFs and UCITS. The new regime provides for a mandatory selection of at least two liquidity management tools (one only for money market type funds) for open-ended AIF and UCITS (LMTs). These shall be chosen from the ones listed in the respective annexes to the directives and will be subject to certain restrictions and suggestions. The regime also provides for governance and investor disclosure obligations.