AIFMD II entered into force in Luxembourg on 16 April 2026, transposed through Bill of Law No. 8628 adopted on 12 February 2026 [1]. Among the many changes it brings, the new liquidity management tool (LMT) requirements are the ones I get the most questions about from emerging managers, and the ones that are easiest to get wrong if you are not paying attention.
In brief: if you manage or are launching an open-ended or semi-liquid alternative investment fund in Luxembourg, you must now select and implement at least two liquidity management tools from a prescribed list. If your fund is closed-end with no redemption rights, you are exempt. But the line between "closed-end" and "open-ended" is not always as clear as managers assume.
What changed
AIFMD II (Directive (EU) 2024/927) [1] introduced a harmonised EU-wide framework for liquidity management in alternative investment funds. Before this, LMT requirements varied by member state. Some jurisdictions had detailed rules; others left it largely to the fund manager's discretion. The new directive changes that by establishing a mandatory minimum standard.
The key requirements are:
- Every open-ended AIF must have at least two liquidity management tools available in its constitutional documents [1].
- At least one of the two must be from the anti-dilution category, meaning tools designed to protect remaining investors when others redeem. These include swing pricing, anti-dilution levies, and redemption fees [1].
- The AIFM must also be able to activate suspensions of redemptions in exceptional circumstances, though this does not count toward the two-tool minimum [1].
- The AIFM must establish detailed policies and procedures for each selected tool: when it is activated, how it is calculated, who makes the decision, and how investors are notified.
The seven tools
AIFMD II prescribes a list of seven liquidity management tools, divided into two categories [1]:
Quantitative restriction tools:
- Redemption gates. The fund can limit the total amount of redemptions processed in any single dealing period. Excess redemption requests are carried forward.
- Notice periods. Investors must give advance notice (e.g., 30, 60, or 90 days) before their redemption request is processed.
- Redemption in kind. The fund can satisfy redemptions by transferring portfolio assets to the redeeming investor instead of paying cash.
- Side pockets. Illiquid or hard-to-value assets are separated into a side pocket that is not available for redemption until the assets can be realised.
Anti-dilution tools:
- Swing pricing. The fund's NAV is adjusted up or down on dealing days when net subscriptions or redemptions exceed a threshold, so that transaction costs are borne by the transacting investors, not the remaining ones.
- Anti-dilution levies. A fee charged to redeeming investors to cover the estimated cost of liquidating assets to meet the redemption.
- Redemption fees. A flat or percentage fee charged on redemptions, typically declining over time.
You must select at least two tools, with at least one from the anti-dilution category. The AIFM retains discretion over which specific tools to select and how to calibrate them, but the selection must be documented in the fund's constitutional documents and disclosed to investors.
Who is affected
The LMT requirements apply to open-ended AIFs, meaning any fund that offers investors the right to redeem their units or shares during the life of the fund [1]. This includes:
- Open-ended real estate funds with periodic redemption windows.
- Semi-liquid private credit funds offering quarterly or annual liquidity.
- Hedge fund-style structures with monthly or quarterly redemption rights.
- Any fund that permits voluntary redemptions, even if subject to lock-ups or notice periods.
Closed-end funds, those where investors have no right to redeem before the end of the fund's term, are exempt [1]. This covers most traditional private equity and venture capital fund structures, where capital is locked up for the fund's full life (typically 7-10 years) and investors receive distributions only when the fund realises investments.
The grey area is semi-liquid structures. If your fund has a stated term of 10 years but includes an annual redemption window after year 3, it is likely classified as open-ended for AIFMD II purposes. If your fund allows secondary transfers but not direct redemptions from the fund, that is different, as secondary transfers are generally not considered redemptions. But these distinctions are fact-specific, and you should confirm the classification with your legal counsel.
What this means for emerging managers
If you are launching a traditional closed-end venture capital or private equity fund in Luxembourg, the LMT requirements do not directly affect you. Your fund documents already do not include redemption rights, so the obligation does not arise.
But there are two situations where I see emerging managers getting caught:
Evergreen and semi-liquid structures. Some first-time managers, particularly those coming from the family office or wealth management world, want to offer their LPs some liquidity during the fund's life. If you build in any form of redemption mechanism, even an annual window subject to the GP's discretion, you trigger the LMT requirements. Make sure you are aware of this before you draft your LPA.
Existing funds that need to update. If you launched an open-ended fund before April 2026 and your fund documents do not include two LMTs from the prescribed list, you need to amend them. The AIFM is responsible for ensuring compliance, so if you are using a third-party AIFM, coordinate with them on the amendment process and timeline. Depending on your fund's governance structure, this may require investor consent or at least notification.
Implementation practicalities
Selecting the tools is straightforward. Building the operational infrastructure to actually use them is harder:
- Swing pricing requires real-time or near-real-time data on transaction costs, portfolio liquidity, and market conditions. The NAV calculation agent (typically the fund administrator) needs to be able to apply the swing factor on dealing days. This means agreeing on the methodology, calibrating the swing factor, and integrating it into the NAV process.
- Redemption gates require a process for prioritising redemption requests when the gate is activated. First-come-first-served? Pro rata? The policy must be defined in advance and disclosed.
- Notice periods need to be operationally enforced. If an investor submits a redemption request inside the notice period, your administrator needs to reject or defer it, and the investor needs to be notified promptly.
- Side pockets require the ability to bifurcate the fund's portfolio at the accounting level, track the side-pocketed assets separately, and prevent redemptions against them. This is non-trivial for administrators and requires specific setup in the fund accounting system.
The AIFM must also report to the CSSF whenever an LMT is activated, including the reason for activation, the expected duration, and the impact on investors [1]. This means you need a documented decision-making framework: who in the organisation has the authority to activate the tool, what triggers the decision, and how quickly the CSSF must be notified.
Interaction with CSSF supervisory powers
AIFMD II also gives the CSSF new powers to intervene directly in liquidity management. The CSSF can now require an AIFM to activate specific LMTs if it determines that there is a threat to financial stability or investor protection [1]. That marks a real shift. Previously, the decision to use liquidity tools was entirely the AIFM's. Now the regulator can override that discretion in exceptional circumstances.
For emerging managers, the practical impact is less about day-to-day operations and more about governance design. Your risk management framework should include a scenario where the CSSF mandates activation of a tool you were not planning to use. Can your systems handle it? Have you modelled the investor communication? These are the kinds of questions the CSSF may ask during the next supervisory cycle.
How we help at Infra One
For managers running open-ended or semi-liquid funds, we build the LMT activation and monitoring process into our fund administration platform from day one. That includes the NAV adjustment calculations for swing pricing, gate tracking for redemption management, and the CSSF notification workflow when tools are activated.
If you are launching a Luxembourg fund and are unsure whether the LMT requirements apply to your structure, reach out. We can walk through your fund's liquidity terms and help you determine what needs to be in place before launch.
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