Rapid withdrawals, jittery markets, and unprepared funds. Today, the combination of global uncertainty, concentrated investor bases, and cross-border structures creates one of the most significant risks for the wealth management of affluent clients. In open-ended funds, it only takes a few large investors reacting faster than the rest for the portfolio value to begin eroding. Liquidity, which was meant to protect, can quickly turn into a trap.
There is a solution, but it is not automatic. European supervisory authorities have refined the rules for fund liquidity management, giving managers tools designed to shield long-term investors from the chaos of short-term withdrawals. For clients with international investments and complex assets, this means one thing: it is vital to understand how your funds are managed and to have a partner who can leverage these rules to protect your capital.
Why liquidity can destroy returns
In open-ended funds, a simple but often overlooked logic applies: the “first mover advantage.” If a fund holds less liquid assets and faces large-scale withdrawals, those assets must be sold quickly and often at a discount. The costs are not borne by the investor who left, but by those who remained. A 10% withdrawal of a fund’s volume in a short period can reduce the value of the remaining portfolio by several percentage points, purely due to the costs of forced selling.
This is where the new liquidity management tools (LMTs) come into play. European regulators have explicitly identified this issue and enabled targeted limitations. This is not about banning withdrawals, but about distributing their timing and costs fairly.
How funds prevent panic
One of the primary tools involves redemption gates or limits on withdrawals at the individual investor level, particularly in funds designed for professional clients. If an investor requests a withdrawal exceeding a set limit, a portion of that request is deferred to the next period. For the client, this translates into higher fund stability and protection of the value of their remaining investment.
Another essential area is anti-dilution tools—mechanisms that transfer liquidity costs to those creating the burden on the fund. Typically, this involves a “swing pricing” adjustment to the entry or exit price to cover actual transaction costs. New rules dictate that these costs must be accounted for realistically—neither administratively inflated nor ignored. For the investor, this means a more transparent price and reduced risk of hidden losses.
“Our goal is to move beyond the marketing promise of daily liquidity and look at the actual plumbing of the fund,” notes the compliance lead at Aisa International. “We analyze whether a fund’s structure truly protects the long-term holder or if it leaves them vulnerable to the panic of others.”
What this means for your legacy
For international clients, the situation is even more nuanced. Funds registered in different jurisdictions, investments in foreign currencies, and diverse investor types create an environment where the same withdrawal can have dramatically different impacts. Without properly configured rules, a single large movement can result in the devaluation of a portfolio by hundreds of thousands of Euros.
At Aisa International, we focus on three critical questions:
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Does the fund actively utilize liquidity management tools?
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How are the withdrawal limits structured?
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Who bears the cost of liquidity—the departing investor or the one who remains?
When to take action
A major warning sign is a high concentration of investors, low liquidity of underlying assets, or funds that promise instant availability without clear protective mechanisms. What would happen if 15% of investors requested a withdrawal in a single week? If the answer is unclear, a review is necessary.
In collaboration with Aisa International, we structure portfolios so that liquidity is not a weak point, but a managed element of the strategy. A combination of funds, direct investments, and liquid reserves allows for a calm response without forced losses.
