Liquidity – protective shield in the storm – or just a promise of good weather?

With a whole toolbox of liquidity management tools (LMTs), the regulation aims to create more stability for open-ended investment funds in the future. But the question remains: Are these instruments really a protective shield in the crisis – or in the end just a promise of good weather?

The Fund Risk Limitation Act (draft bill BMF) sets out until 16. April 2026 will amend EU Directive 2024/927. A transitional period until 2027 applies to existing funds, which was preceded by intensive debates – including at the Financial Stability Board (FSB) and the Organization of Securities Commissions (IOCSO).

In future, open-ended investment funds – i.e. UCITS and open-ended AIFs – will have to include at least two LMTs in their documents (money market funds: one LMF). The goal is a balancing act:

Investor protection (no "first mover advantage" of investors returning share certificates early),
Market stability (no fire sales),
but without making open-ended investment funds permanently unattractive.

The toolbox

LMTs have been in practice for some time, but so far voluntarily. Now the selection will be mandatory and monitored by the supervisory authority. In addition to swing pricing, side pockets and anti-dilution mechanisms, the following are particularly relevant for open-ended real asset AIFs:

Redemption Gates / Extended Notice Periods
Runoffs are limited in time or quantity.
Advantage: orderly liquidation instead of run.
Controversy: Investors feel "locked in", liquidity problem only postponed.
Redemption Fees / Charges
A percentage discount on redemption accrues to the fund.
Advantage: Protection of long-term investors.
Controversy: Investors perceive it as a "punishment".
Redemptions in kind
Instead of cash, there are assets.
Advantage: no forced sale in stress.
Controversy: Hardly practical for private investors – who wants an office property instead of money?

The AIFMs are quite flexible in the selection of LMTs, with the guidelines set by the Final Report submitted by ESMA to the EU Commission on 15 April 2025 with the Draft Regulatory Technical Standards (RTS) and the guidelines on LMTs .