The revisions to the UCITS Directive and the AIFMD made liquidity management tools a standard feature of every open-ended fund in the EU. Many managers dealt with the first step in early 2026 by adding two tools to their fund documents. The harder step, deciding exactly how those tools would work and proving the settings are right, is due by April 2027 for existing funds.

What the rules require

Managers of UCITS and open-ended AIFs must select at least two tools from a defined list:

• Quantitative tools, which limit or delay redemptions: redemption gates and extension of notice periods.
• Anti-dilution tools, which pass the cost of dealing to the investors who cause it: redemption fees, swing pricing, dual pricing and anti-dilution levies.
• Redemption in kind, where investors receive assets rather than cash.

Suspension of dealing and side pockets remain available in exceptional circumstances, but they do not count towards the two. Selecting only swing pricing and dual pricing together does not satisfy the requirement either. Money market funds need only one tool.

ESMA’s guidelines add that managers should consider the merits of choosing at least one quantitative tool and at least one anti-dilution tool, so that a fund can both manage the pace of outflows and protect remaining investors from their cost. The final choice remains the manager’s responsibility, but a fund that departs from that pattern should be able to explain why.

Where the work is: calibration

Selection is a policy decision. Calibration is analysis. For each selected tool, the manager has to set parameters that fit the fund’s strategy, assets, dealing frequency and investors, and be able to show a regulator how they were set.

Two features run through all of this. First, anti-dilution tools should reflect real costs, including implicit ones such as bid-offer spreads, not a round number chosen for convenience. Second, thresholds should take account of how often the fund prices, how liquid its assets are and who its investors are. A daily-dealing fund with a few large nominee holders needs different settings from a monthly fund with many small investors.

Governance and disclosure

The selected tools, and the conditions for using them, must be documented in an LMT policy that sits within the fund’s liquidity risk management process. Investors must be told which tools the fund can use and what they mean for costs and access to their money. For most funds, that means amending the prospectus or offering document, and, for authorised funds, having those changes approved. That approval step is what makes April 2027 closer than it looks.

When a tool is activated or deactivated, the decision and its basis need to be recorded. Where a fund uses swing pricing and applies a factor above its stated maximum, it should be able to justify that afterwards if asked.

A practical timetable for a small fund

What good evidence looks like

If a regulator asks why a gate is set at a particular level, the answer should be a short file, not a recollection. That file should contain the data used, the stress test results, the cost estimates, the back-test of the proposed thresholds, the board minutes approving them and the resulting disclosure. Built once, it becomes the baseline for each annual review.

For boards, the monthly risk report is where this becomes visible: which tools are available, where the fund stands against each threshold, and whether any were close to activation. A report that still lists LMTs as “to be confirmed” in 2027 will be difficult to defend.