Investment funds must be able to pay out to shareholders at any time if they wish to redeem their fund units. Under exceptional market conditions – such as disruptions caused by sharp price fluctuations or market restrictions – this can be challenging. This is where liquidity management tools (LMTs) come into play.
In this article, we explain in simple and clear terms what LMTs are, what tools are available and what they can be used for.
What are liquidity management tools (LMTs)?
LMTs are tools that an investment fund may use, particularly in times of stress – i.e. in exceptional market situations – to safeguard the interests and equal treatment of unit holders and to enable orderly fund management. Three protective functions are central to these LMTs:
- protect existing unit holders,
- ensure equal treatment of unit holders in times of stress, and
- ensure fair pricing.
What are times of stress?
These are events that make it very difficult to sell securities from the investment fund in an orderly manner. A stress situation arises when a large number of shareholders redeem their shares in the investment fund at the same time or when the securities in the investment fund cannot be sold at a fair price due to market distortions.
Why are LMTs being introduced across Europe?
The EU’s AIFMD II directive has created new requirements for LMTs, which investment companies must implement by mid-April 2026. In future, they will have to select suitable liquidity management tools and incorporate them into the fund rules.
The aim of the regulation is to better prepare fund managers for stress situations and to ensure uniform standards across Europe. LMTs are intended to ensure that:
- even in a difficult market environment, redemptions can be serviced, taking into account the interests of unit holders
- assets do not have to be sold below their value
- all unit holders are treated fairly
What liquidity management tools are available?
There are a number of possible instruments within the LMTs that can be used under certain exceptional conditions:
- Suspension of redemptions
- Redemption restrictions (gating, e.g. only a portion of the shares can be redeemed immediately)
- Extension of notice periods
- Redemption fee
- Swing Pricing
- Dual Pricing
- Dilution protection fee
- In-kind distribution (redemption in the form of assets)
- Spin-off of illiquid investments (side pockets)
The LMTs that we will be introducing in the Erste Asset Management Group in future are described in more detail below. It is important to note that these measures should only be used in the event of serious market disruptions and not in normal day-to-day business.
Why Erste Asset Management is introducing LMTs now
Regulatory requirements oblige all investment companies to introduce appropriate systems by 16 April 2026.
In accordance with the regulatory requirements, the Erste Asset Management Group (including ERSTE Immobilien KAG) will introduce the LMTs ‘redemption restriction (gating)’ and ‘extension of notice periods’ on this date.
Redemption restriction (gating)
When this instrument is used, all sell orders received are only partially executed. The unexecuted portion of the sell order expires. These rules are also intended to ensure equal and fair treatment of all unit holders in the event of significantly increased redemptions. The fund and the remaining unit holders are to be protected. In the event of massive payouts, no assets should have to be sold at unfavourable prices.
👉 Example: When this instrument is used, only 70% of all sell orders are considered, for example. The remaining 30% of sell orders are not executed and expire. The unit holder is informed of this redemption restriction.
Extension of notice periods
This instrument extends the period between the unit holder’s sell order and the actual execution. This instrument reduces the pressure on the fund to sell assets immediately. It thus contributes to stability, protection and the fair and equal treatment of unit holders, especially in stressful situations.
👉 Example: A sell order placed today will not be executed at tomorrow’s fund price. Instead, it will be executed at the fund price valid at the time of application of the extended period, e.g. 5 days later.
Conclusion: What does this mean for investors?
The introduction of LMTs brings several advantages for unit holders. In exceptional periods of stress on the financial markets, they help to ensure equal treatment of all unit holders and protect existing unit holders.
It is important to note that LMTs should only be used in absolutely exceptional situations, such as massive market distortions that would otherwise lead to emergency sales or disadvantage certain groups of investors. There are clearly defined rules for the use of each instrument, which are determined in advance by the investment company. They are never applied automatically, but always on the basis of a conscious, active decision by the fund management or the responsible committees within the framework of the regulatory requirements.
All unit holders are informed transparently about the introduction of LMTs. In the event of activation, unit holders are informed via the investment company’s website. This ensures that it is always clear what measures have been taken and why.
Legal disclaimer
This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.
The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.
The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the fund prospectus or the Information for Investors pursuant to Art 21 AIFMG and the key information document are available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.
The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.
Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.
Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance. Past performance is not a reliable indicator of the future performance of a fund.
Please note: Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.
We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.
Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.
It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice.
This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.
Erste Asset Management GmbH is affiliated with the Erste Bank and austrian Sparkassen banks.
Please also read the “Information about us and our securities services” published by your bank.
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