ALFI responds to IOSCO consultation report on anti-dilution liquidity management tools

ALFI has responded to IOSCO’s consultation report on anti-dilution liquidity management tools.
ALFI highlights that open-ended RE funds already have appropriate mechanisms in place to manage liquidity and mitigate dilution risks. These mechanisms include commitment mechanisms, redemptions paid with undrawn commitments and unencumbered cash, and the use of adjusted NAVs. The ALFI survey indicates that only 1% of Luxembourg real estate funds made use of liquidity management tools during the COVID-19 pandemic, suggesting that existing prospectus powers and tools are sufficient.
ALFI also raises concerns about the proposed guidance being appropriate and proportionate for all types of OEFs and responsible entities. They argue that certain details, such as thresholds, may need to remain confidential to protect the fund. Transparency should be provided to all shareholders, but certain categories of investors may require additional disclosure. ALFI suggests that a fund using multiple thresholds and swing factors may have different challenges concerning transparency. They also emphasize the subjective nature of estimating implicit costs for real estate assets and the need for further analysis rather than relying solely on historical stress test results.
Regarding the disclosure to investors, the ALFI believes that the proposed ex-ante information is appropriate and effective in explaining the use of anti-dilution liquidity management tools. They suggest complementing the IOSCO suggestions with industry guidelines, regulator FAQ documents, and asset manager swing flyers. The ALFI also highlights the importance of robust internal controls and proprietary methodologies to avoid leaking and potential gaming.
In terms of ex-post disclosure, the ALFI suggests that dynamic information should be provided outside of fund prospectus and articles, such as on asset manager websites. They also mention the need to consider the impacts of cumulative day on day dilution events.