The AMF releases an updated stocktake of French funds equipped with liquidity management tools

Incentive measures that have borne fruit

Liquidity management tools aim at ensuring fair treatment of unitholders in times of stress and therefore help to protect investors. They also make it possible to limit the destabilising consequences of liquidity shocks on the financial markets. Historically, French funds were poorly equipped with mechanisms to cap redemptions (gates) and with anti-dilution tools (swing-pricing or anti-dilution levies).

To facilitate the adoption of these tools by French funds, the AMF introduced a transitional period during which gates could be introduced by simply informing unitholders by any means, subject to compliance with certain terms and conditions. This transitional period ended on 31 December 2023 for most types of fund. The standard prospectus templates have also been revised to include specific information on the risks associated with the absence of gates.

In the case of anti-dilution tools, when management companies have not introduced these mechanisms for some of their funds, they have to declare the reasons to the AMF and provide a statement acknowledging the risks involved. They are also required to reassess regularly the need to introduce these tools.

The automated analysis of the prospectuses of funds domiciled in France shows that the measures taken by the AMF have indeed led to widespread adoption of gates and swing-pricing in open-ended funds.

A large proportion of funds accessible to retail investors have taken advantage of the transitional period, which has simplified the introduction process for gates and anti-dilution tools in fund prospectuses.

When considering the population of undertakings for collective investment in transferable securities (UCITS) and general-purpose investment funds (FIVGs), the AMF found that gates accounted for 66% of net assets at end-2023 (compared with 17% at end-2022) and anti-dilution tools accounted for 45% of net assets (compared with 23% one year earlier).

As regards open-ended funds specialising in less liquid asset classes (real estate, private equity), gates are now present in all retail real estate collective investment schemes (OPCIs) and all open-ended venture capital mutual funds (evergreen FCPRs).

French funds better prepared for future regulatory changes and better protected in the event of tensions

As part of the review of the UCITS and AIFM Directives published in March 2024, which will have to be transposed into national law by April 2026, all European open-ended UCITS and AIFs will have to have at least two liquidity management tools by 2026. For money market funds, the requirement will be for a single liquidity management mechanism.

The recent development in the availability of liquidity management tools by French funds is therefore a head start for the future European obligation.