knowledge 30 October 2025 |

Regulatory Technical Standards on Open-Ended Loan-Originating Alternative Investment Funds

Under Article 16(2)(f) of AIFMD II, ESMA was to develop draft RTS to determine the requirements with which OE LO AIFs are to comply in order to maintain an open-ended structure. The publication of the final report follows ESMA’s consultation paper issued in December 2024 on the proposed draft RTS on OE LO AIFs. This consultation period closed on 12 March 2025 and following the public consultation, ESMA introduced the following key amendments to the draft RTS:

1. removal of the requirement for AIFMs to determine an appropriate amount of liquid assets that OE LO AIFs shall hold to meet redemption requests;
2. the frequency of liquidity stress testing was updated, so that AIFMs managing OE LO AIFs are required to carry out liquidity stress tests at least annually rather than every quarter, as previously proposed; and
3. clarifications that provisions applied to AIFMs that manage OE LO AIFs, rather than AIFMs that “intend to manage” such OE LO AIFs.

The key provisions of the RTS are set out below.

Sound Liquidity Management

The RTS provide that an AIFM that manages an OE LO AIF must be able to demonstrate to its competent authorities that the liquidity risk management system of the OE LO AIF is compatible with its investment strategy and its redemption policy. An AIFM managing such an AIF shall define an appropriate redemption policy and ensure that the OE LO AIF has sufficient liquidity to comply with redemption requests. For each OE LO AIF it manages, an AIFM shall carry out liquidity stress tests and have in place the appropriate liquidity risk management systems to monitor the liquidity of the OE LO AIF.  An AIFM shall be able to demonstrate to its home regulator that it has selected the appropriate liquidity management tools in accordance with Article 16(2b) of AIFMD II.

Appropriate Redemption Policy

An AIFM managing an OE LO AIF must ensure that the redemption policy of the OE LO AIF is appropriate and in order to do so, the AIFM must consider a number of factors, including at least:

1. the frequency of redemptions offered to shareholders or unitholders;
2. the availability of liquid assets held by the AIF;
3. the portfolio diversification and the liquidity profile of the assets held;
4. the investment policy and strategy;
5. the credit quality of the loans;
6. the investor base and the investor concentration;
7. the level of subscriptions and redemptions of investors;
8. the duration of the minimum holding period, where applicable;
9. the length of the notice period and the settlement period, where applicable;
10. other redemption conditions, where applicable;
11. the expected incoming cash flows of the portfolio;
12. the market conditions and material events that may affect the possibility for the AIFM to implement the redemption policy of the OE LO AIF it manages;
13. the liquidity management tools selected in accordance with Article 16(2b) of AIFMD II, their calibration and the conditions for their activation;
14. the results of the liquidity stress tests; and
15. the availability of a reliable, sound and up-to-date valuation of the loans and other assets in the portfolio.

Liquidity of Open-Ended Loan-Originating AIFs

An AIFM which manages an OE LO AIF must ensure that the OE LO AIF has sufficient liquidity to comply with redemption requests and in doing so, must consider a number of factors, including, at least:

1. the availability of liquid assets held by the AIF;
2. the redemption policy of the AIF;
3. the portfolio diversification and the liquidity profile of all the assets in which the AIF has invested;
4. the length of the notice period;
5. the length of the settlement period for subscriptions and redemptions;
6. the length of the minimum holding period, where applicable;
7. the available liquidity management tools, their calibration, and the conditions for their activation;
8. for the loans granted by the AIF: (i) the repayment terms and schedules; (ii) the maturities; (iii) the credit quality; (iv) the underlying exposures; and (v) the estimated default rates and rescheduling;
9. the incoming cash flow of the portfolio;
10. the investor base including the investor type, potential investor concentration and, where available, investors’ subscription and redemption behaviours;
11. if any, the targeted level of leverage, including leverage arising from hedging strategies, and the related financial obligations; and
12. any other liabilities.

The RTS clarify that the expected cash flow generated by the loans granted by the OE LO AIF shall be considered as liquid assets.

Liquidity Stress Tests

The RTS provide that an AIFM which manages an OE LO AIF must conduct liquidity stress tests, at least annually. The assets and the liabilities of the OE LO AIF shall be stress tested separately, with the results of these stress tests then being combined to determine the overall effect on the liquidity of the OE LO AIF. The RTS require that an AIFM apply severe but plausible scenarios in terms of change in interest rates, credit spread and potential defaults in loans granted, as well as in redemption requests. The stress tests employed by the AIFM shall consider adequately the characteristics of the OE LO AIFs they manage and shall consider scenarios with low probability but high impact on the ability of AIFMs to value the loans.

Ongoing Monitoring

To ensure that the liquidity management system of the OE LO AIF remains compatible with its redemption policy and investment strategy, the RTS clarify that an AIFM shall monitor on an ongoing basis, the following elements:

1. the portfolio concentration;
2. the level of unencumbered cash;
3. the cash flows;
4. the amount and timing of subscriptions and redemptions;
5. the repayment of the loans;
6. the behaviours or shareholders or unitholders;
7.  the portfolio composition and concentration;
8. the maturity of the loans;
9. early-warning signals of loans impairment;
10. the level of leverage;
11. the liquidity of the AIF; and
12. any liabilities of the AIF.

Next Steps

Upon issuance, the RTS were submitted to the European Commission (the “Commission”), which has three months to decide whether the RTS should be adopted.  However, pursuant to a letter published by the Commission on 6 October 2025, it has advised that it considers 115 RTS, including this RTS in respect of OE LO AIFs, to be “non-essential” for the effective functioning of the relevant Directives or Regulations and so such RTS will not be adopted before 1 October 2027.  This is less than ideal given that AIFMD II shall apply from 16 April 2026 and will be directly applicable in all European Union Member States.

Comment

AIFMD II has already resulted in significant amendments to the operation of AIFs, particularly OE LO AIFs, and AIFMs in Europe. The delay to the adoption of the RTS in respect OE LO AIFs will potentially lead to uncertainty in how such funds should be structured and could lead to different positions being taken by different regulators.

For Irish OE LO AIFs, the AIFMD II provisions are less onerous than those currently set out in the Central Bank of Ireland’s (the “Central Bank”) AIF Rulebook. The Central Bank’s recently published CP162, which contained proposed amendments to the Central Bank’s AIF Rulebook to reflect the changes being introduced under AIFMD II should ensure that Ireland can now operate on a level playing field with other EU jurisdictions.