EFAMA responded to ESMA’s consultations on regulatory technical standards and guidelines, which aim to provide EU asset managers with further details on a broad and harmonised list of liquidity management tools (LMTs). As part of the recent AIFMD and UCITS review, these improvements will support our industry’s response to liquidity pressures, both in normal and stressed market conditions, while also protecting the interests of investors.
While the ESMA proposal is broadly positive, our members feel certain elements risk being too prescriptive. Given the wide variety of types, investment strategies, liquidity profiles and redemption policies of funds, we believe the manager is best placed to choose LMTs that will provide optimal results for a particular fund and its investors. Therefore, we emphasise the need for better recognition of the manager’s discretion in selecting, calibrating and activating these tools. In particular, managers should not be obliged to select at least one anti-dilution tool and one quantitative LMT. Otherwise, they may be limited in choosing the best possible combinations to manage the unique liquidity profile of their open-ended funds.
We strongly oppose the establishment of fixed minimum activation thresholds for LMT calibration. They would not be suitable for all funds and their strategies and could, in fact, increase liquidity pressure in stressed market conditions.
Suspensions should be available for activation only in exceptional circumstances. As proven by examples over recent years, these events can be very diverse in nature and hard to predict. Due to its far-reaching consequences, this LMT is considered a measure of last resort, and the manager’s decision to activate it should not be constrained by any established definition of “exceptional circumstances”.
Zuzanna Bogusz, EFAMA Regulatory Policy Advisor, commented: “The investment management sector has responded well to significant market stress in the past, for example, the large outflows experienced at the beginning of the Covid-19 pandemic. This proves the sector's resilience and asset managers' experience when facing unexpected market conditions. The unconstrained access to and use of a full list of liquidity management tools is imperative for continued, successful liquidity management in the future.”
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Note to editors :
Read more about our work on AIFMD & UCITS here.
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Hayley McEwen
Head of Communication & Membership Development
