On 12 December 2024, ESMA released a consultation paper on regulatory technical standards (RTS) for open-ended loan-originating funds under the revised alternative investment fund manager directive (“AIFMD”). According to the revised AIFMD, loan-originating Alternative Investment Funds (“LO AIFs”) shall be closed-ended unless their manager can demonstrate to its home national competent authority that their liquidity risk management system is compatible with their investment strategy and redemption policy. The consultation aims to receive feedback on the draft Regulatory Technical Standards (RTS) that set out the requirements with which LO AIFs shall comply to maintain an open-ended structure.
The consultation is open until 12 March 2025, with final RTS submission to the European Commission expected by late 2025.
Key Points
- Liquidity management: managers must establish a robust system, including appropriate redemption policies, availability of liquid assets, regular stress testing, and ongoing monitoring. Requirements are broad to allow national authorities flexibility.
- Redemption policy: the RTS outline various factors for managers to consider when developing redemption policies for open-ended loan origination AIFs. These include targeted credit quality of the loans, amount of liquid assets held by the fund and expected incoming cash flows. The RTS allow national authorities to deem a redemption policy inappropriate for additional reasons.
- Stress testing: managers shall conduct a liquidity stress testing with conservative scenarios at least quarterly. Assets and liabilities of the relevant fund should be stress tested separately and scenarios for liquidity stress testing must be conservative (including those with low probability).
- Ongoing monitoring: AIFMs need to continuously monitor essential metrics, including level of liquid assets, potential future liabilities, early signs of loan impairment and repayment schedules. They must also ensure that the liquidity management procedures remain aligned with the redemption policy offered to investors.
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