After assessing the suitability in relation to the investment strategy of the AIF, its liquidity profile and the redemption policy, the AIFM managing open-ended AIFs shall select at least two LMTs from the following list to be used in the interest of the investors: redemption gates, notice periods, redemption fees, swing pricing, anti-dilution levy, and redemption in kinds. The EU Parliament draft report requires the AIFM of open-ended AIF to select at least only 1 LMT, with side pockets instead of the redemption in kinds. The EU Parliament final report has also added the two following points:

• the LMTs selection performed by the AIFM does not prevent it to use the other LMTs mentioned in this paragraph (including side pockets); and
• an AIFM that manages an MMF may select only 1 LMT between redemption gates, notice periods, redemption fees, swing pricing, anti-dilution levy, and redemption in kinds.

 Whereas the EU Parliament draft report requires an AIFM activating or deactivating either suspension of redemptions and subscriptions, redemption gates, notice periods or redemption fees to notify its competent authority, the EU Parliament is more specific. Indeed, the AIFM shall notify its competent authority in any of the following circumstances:

– when an AIFM activates or deactivates suspensions of redemption and subscription in situations of liquidity stress;

– when activating or deactivating side pockets;

– when activating or deactivating any other LMT in a manner that is not in the ordinary course of business as envisaged in the fund documentation.

ESMA shall develop guidelines specifying best practices as regards the characteristics of the 8 LMTs set out in Annex V of AIFMD taking into account the diversity of investment strategies and underlying assets. The EU Parliament draft report refers to RTS, not guidelines.

ESMA shall also develop draft RTS more focused on the disclosure to competent authorities and investors of information related to the selection and calibration of LMTs by the AIFMs for liquidity risk management and for mitigating financial stability risks. The EU Parliament draft report refers directly to the selection and use of LMTs by the AIFMs.

The power of competent authorities to request AIFMs to apply certain LMTs in the interest of investors, in exceptional circumstances and after consulting the AIFM may be used by the competent authorities provided that there are reasonable and balanced investor protection or financial stability risks that necessitate this requirement.

Access the European Parliament Final Report of 2 February 2023 here.