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As detailed in our previous alert "Loan Fund Structures Under AIFMD2: ESMA's Proposals," in December 2024, the European Securities and Markets Authority (ESMA) issued a consultation with draft regulatory technical standards (RTS) setting out the proposed requirements that a loan-originating alternative investment fund (AIF) must comply with to maintain an open-ended structure under the revised Alternative Investment Fund Managers Directive (AIFMD2). On 21 October 2025, ESMA published its final report with revised draft RTS.
The basic rule under AIFMD2 is that a loan-originating fund can only be open-ended (an OE LOF) if the alternative investment fund manager (AIFM) can demonstrate to its home member state's national competent authority (NCA) that the AIF's liquidity risk management system is compatible with its investment strategy and redemption policy.
The draft RTS do not change or update the existing Level 2 liquidity management provisions set out in the Commission Delegated Regulation (EU) 231/2013.
Although the draft RTS were due to apply from 16 April 2026 — the date by which EU member states are required to implement AIFMD2 — the European Commission (Commission) identified them as "non-essential" in its 1 October 2025 letter to the European Supervisory Authorities. As a result, unlike the separate AIFMD2 Level 2 measures on liquidity management tools, which will apply to AIFMs of open-ended AIFs (therefore including OE LOFs) from 16 April 2026 and are currently under review by the Commission, these draft RTS will not be introduced before 1 October 2027, if at all. In the absence of any guidance to the contrary, a pragmatic approach would be to follow the principles set out the draft RTS even though there will be a hiatus in their likely application.
The Requirements in Summary
The regulatory requirements for OE LOFs include
- "a sound liquidity management system",
- "the availability of liquid assets and stress testing," and
- "an appropriate redemption policy having regard to the liquidity profile" of LOFs,
taking "due account of the underlying loan exposures, the average repayment time of the loans and the overall granularity and composition" of the LOFs' portfolios.
Key Changes From the Consultation Draft to the Final Report
The revised RTS in the final report mostly follow the consultative draft. However, ESMA flags three areas in which it has adjusted its approach; each area reflects stakeholder feedback and are welcome changes. ESMA:
- Adjusted its approach in the final report, so that AIFMs are to structure OE LOFs in a manner that ensures that they maintain sufficient liquidity to meet redemption requests. This is instead of the originally proposed requirement for AIFMs to predetermine a fixed amount of liquid assets to meet redemption requests. ESMA accounted for feedback that effective liquidity management in OE LOFs depends more on the liquidity arising from the loans granted by the funds than constantly holding a fixed amount of liquid assets. ESMA also considered that this "requirement could adversely impact fund performance" and is inappropriate for a few reasons.
- Reduced the frequency of liquidity stress testing from quarterly to at least annually unless the specific features of an OE LOF call for more frequent assessments.
- Replaced the phrase "intend to manage" with "manage" to remove ambiguity around whether OE LOFs need prior authorisation from their NCAs. This change also brings the language in line with the Level 1 Directive, which refers specifically to 'AIFMs that manage OE LOFs' and not 'intend to manage.' Nonetheless, ESMA recognises that some OE LOFs may still require pre-authorisation under national laws, as the AIFMD itself does not regulate AIF authorisation procedures.
Summary of the Proposed Requirements
In the following table, we set out the principal points on how the draft RTS apply, along with our comments.
| Sound Liquidity Management Feature | Proposed RTS Requirements in the Final Report | Comments |
| Sound Liquidity Management (Articles 2 and 4) | An AIFM must consider at least 12 factors set out in the draft RTS to ensure that the OE LOF has sufficient liquidity to comply with redemption requests. | The removal of a regulatory minimum amount of liquid assets to be held by OE LOFs is a welcome change for the reasons previously set out. |
| Appropriate Redemption Policy (Article 3) |
An AIFM must consider at least the 15 factors set out in the draft RTS to define an appropriate redemption policy. In addition to the frequency of redemptions offered, availability of liquid assets held by the AIF, credit quality of loans, and investor base and concentration, the AIFM has to consider any minimum holding period, length of notice and settlement period, other redemption conditions, and availability of reliable, sound, and up-to-date loans/other asset valuations. The factor on loan/ other asset valuations no longer refers to "estimated realisable value at the dates of redemptions," which respondents argued was an unnecessary additional requirement that could unhelpfully lead to different NCA interpretations. |
Reflecting broad consensus from industry feedback, ESMA made some updates to this list and confirmed in its final report that there is no need for an AIFM to include any other factors. |
| Liquidity Stress Tests (Article 5) |
An AIFM must:
|
Stress tests need to be tailored to the OE LOF's strategy. For instance, a less liquid asset base and/or concentrated investor base, use of leverage, or deteriorating market conditions may increase the frequency. ESMA guidelines on liquidity stress testing will also apply to OE LOFs. |
| Ongoing Monitoring (Article 6) | To ensure the liquidity management system of the OE LOF remains compatible with the AIFM's investment strategy and redemption policy, the AIFM has to monitor specific parameters, such as the portfolio concentration, cash flows, amount and timing of subscriptions and redemptions, unitholder behaviour, early-warning signs of loan impairment, leverage levels, availability of liquid assets in the AIF's portfolio, and any AIF liabilities. |
In its final report ESMA has made some technical amendments to the provisions on ongoing monitoring. An AIFM will need to demonstrate that it has the arrangements in place to assess and monitor the evolution and behaviour of key elements of their funds and loans granted. |
Although the rules on LOFs and liquidity management tools in AIFMD2 will not apply directly to firms authorised under the UK AIFMD rules, they will still be relevant for UK and other non-UK AIFMs, whether they are marketing in the EU under AIFMD Article 42, pertaining to national private placement regimes, or acting as delegates of EU AIFMs.
To discuss the contents of this alert, please contact any of the authors or your usual Goodwin contact.
In addition to the alert previously mentioned, you may also be interested in reading:
- "Horizon Scan for Private Investment Funds: Key Recent Funds, Legal and Regulatory Developments to Look Out for in the Coming Months" (October 2025)
- "Liquidity Management Under AIFMD2: RTS for Open-Ended Funds" (September 2024)
- "Loan Origination Under AIFMD2: A Guide" (July 2024)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
