Liquidity risk is often easy to discuss in stable market conditions. The real challenge begins when markets become stressed, investor behaviour changes rapidly and decision-making timelines compress significantly.

In those moments, liquidity management stops being a theoretical exercise and becomes an operational reality.

Over recent years, increasing market volatility and evolving regulatory expectations have progressively pushed liquidity governance higher on the agenda of Luxembourg AIFMs, especially those managing open-ended investment vehicles. This evolution is further reinforced by AIFMD II, which introduces a harmonised framework of liquidity management tools across the European Union.

Many of these tools already existed in practice and were widely considered as market best practices. However, AIFMD II strengthens the regulatory framework, formalises their availability across EU jurisdictions and promotes greater consistency in market approaches.

The challenge for AIFMs is no longer limited to identifying liquidity risks, documenting liquidity management tools within fund documentation or simply understanding liquidity tools conceptually. It is ensuring that they can be activated, governed and communicated effectively under real operational pressure. Increasingly, CSSF expects AIFMs to demonstrate that liquidity frameworks operate effectively in practice and can support informed decision-making during time-sensitive periods of stress.

In practice, this means ensuring that:

• liquidity risks are continuously monitored and challenged
• stress testing frameworks remain realistic and actionable
• liquidity management tools are operationally implementable
• escalation and governance processes function effectively during stressed situations
• portfolio, risk and operational teams interact efficiently
• governance bodies receive clear and timely liquidity reporting

At Value Partners, our experience supporting AIFMs through operational assignments and governance-related projects has shown that liquidity challenges rarely originate from the absence of theoretical frameworks. More often, they arise from the operational complexity of coordinating decision-making, governance and execution under pressure. In that context, external support with hands-on operational exposure can help organisations strengthen liquidity preparedness, improve governance coordination and bring practical perspective to stressed-scenario management.

As market conditions and regulatory expectations continue to evolve, liquidity management is becoming more than a regulatory topic. It is increasingly a question of operational resilience and governance readiness.