With AIFMD taking effect on April 16, 2026 this open-ended vs closed-ended distinction will become even more significant. Open-ended funds will, amongst others, be required to hardwire two predefined liquidity management tools (LMTs) to address liquidity pressure in times of market stress and to protect investors. In addition, the new leverage caps applicable to loan‑originating funds will depend on whether the fund is classified as open‑ended or closed‑ended. Leverage is capped at (i) 200% of the net asset value of the fund (NAV) for closed‑ended loan‑originating AIFs, and (ii) at 75% of the NAV for open‑ended loan‑originating AIFs.
Open-ended definition, over a decade old
Under the European regulatory framework, an open‑ended fund is defined as a fund that, at the request of an investor, redeems or repurchases units prior to its wind‑down or liquidation phase, using the assets of the fund. Any fund that does not meet this definition is deemed closed‑ended. Importantly, cash distributions, being discretionary, contingent events that do not reduce an investor’s proportional interest, are irrelevant to this classification, as they do not create liquidity stress.
By contrast, the U.S. market typically also places weight on the fund’s subscription model when determining whether a fund is open‑ or closed‑ended. A vehicle that accepts new capital on an ongoing basis is generally considered open‑ended, while a fund operating with a defined fundraising period is treated as closed‑ended. Under EU rules, however, the dynamics of capital inflows are immaterial.
This European definition of open‑ended funds, now more than a decade old, predates the rise of semi‑liquid, European‑domiciled evergreen funds, a segment that has expanded rapidly since 2022–2023. These strategies are perpetual by design, and investors cannot reasonably be expected to remain locked in indefinitely. As a result, sponsors invariably implement withdrawal mechanics of varying sophistication. The absence of any such mechanism is not only commercially unviable, but in many cases legally problematic: under civil‑law principles, an indefinite contractual commitment without a defined or determinable term may be considered impermissible.
Is an evergreen fund always open-ended?
Based on a literal reading of the definition above, one could argue that an evergreen fund is, by its very nature, open‑ended, since perpetual vehicles necessarily include some form of withdrawal mechanism. However, as discussed below, applying this interpretation mechanically would, particularly in the case of semi‑liquid private evergreen funds, run counter to the economic rationale underpinning the relevant AIFMD 2 provisions. In practice, semi‑liquid evergreen funds are commonly structured as rolling‑vintage or run‑off models. The sections below outline the default features of each model and examine how they should be classified for regulatory purposes under the open‑ended/closed‑ended distinction.
Is a rolling vintage fund open- or closed-ended?
In a typical rolling‑vintage fund, the offering provides investors with exposure to successive vintages, each established for a fixed term. At the end of a vintage’s term, investors are automatically rolled into the next vintage, ensuring continuous exposure. If an investor elects not to participate in the next vintage, their capital is returned when the current vintage reaches the end of its term. Whether assets are rolled into the next vintage depends on factors such as market conditions, liquidity needs, and commercial opportunity.
Vintages may be structured as legally segregated compartments or defined contractually through series of interests or share classes that track the performance of the relevant asset pool. The Luxembourg RAIF regime, which permits legally segregated compartments, offers the most efficient framework for structuring each vintage as a separate compartment. Under this model, each compartment constitutes a separate AIF, and none provides withdrawal rights prior to its own wind‑down and liquidation. Each compartment is therefore classified as closed‑ended. The ability of an investor to decline a rollover from one compartment to the next has no bearing on this analysis. This outcome also aligns with the economic rationale underpinning AIFMD 2: LMTs are intended to mitigate liquidity stress, which cannot arise within a vintage if investors lack withdrawal rights during its term.
If vintages are defined contractually through series of interests or share classes within a single legal AIF, an investor’s decision not to roll into the next vintage (i.e., meaning that the interest or shares of the investor would be redeemed rather than converted into an interest or shares of the next vintage) may, at the level of the overall fund, appear similar to a redemption prior to the fund’s liquidation phase. A strictly literal interpretation of the “open‑ended” definition could therefore lead to the conclusion that such a fund is open‑ended, triggering an obligation to select LMTs. However, this outcome would be inconsistent with the purpose and underlying economic logic of AIFMD 2. A vintage‑style fund does not experience liquidity stress due to a non‑rollover decision: no intra‑vintage withdrawals occur, and capital is returned only at the scheduled end of a vintage’s fixed term. Requiring LMTs in such a scenario would therefore not serve the investor‑protection objective of AIFMD 2.
Is a run-off model fund open- or closed-ended?
In a standard run‑off model, investors may request the return of their investment, but redemptions are only effected once the portion of the portfolio attributable to the requesting investor has been realised in the ordinary course, at the fund manager’s discretion. A strict, literal reading of the definition of “open‑ended” might suggest that such a fund is open‑ended, since investors do possess a contractual right to be redeemed.
However, in this model a redemption request does not require the fund manager to generate liquidity, whether by selling assets or otherwise accelerating portfolio realization. The manager continues to execute the disposal strategy as planned, and redemptions occur only once the relevant assets have naturally run off. There is therefore no liquidity management function to perform.
When assessed through the economic rationale underlying AIFMD 2, the conclusion becomes clear: a standard run‑off fund is properly classified as closed‑ended. Liquidity stress cannot be triggered by redemption requests, and imposing liquidity management tools (LMTs) would serve no regulatory purpose, as there is no liquidity mismatch risk to mitigate.
Classification as closed or open-ended, branding
In practice, situations arise where the open‑ versus closed‑ended assessment is not straightforward and requires careful, model‑specific analysis. The key point, however, is that a private semi‑liquid evergreen fund should not be presumed to be open‑ended by default. A case‑by‑case assessment of the withdrawal mechanics is essential, with sound economic rationale as the guiding principle. The central question is simple: can the withdrawal features give rise to liquidity stress?
A regulatory reclassification from closed‑ended to open‑ended status can materially affect the EU AIFM and the fund itself, most notably through changes to applicable leverage limits and liquidity management obligations, and may therefore introduce meaningful risk. For this reason, we recommend including clear and tailored disclosures within the fund documentation’s risk sections explaining the basis for the open‑ or closed‑ended qualification, grounded in economic rationale. Such disclosures are particularly important given the absence of detailed regulatory guidance and the reliance on a definition that is now over a decade old and predates the emergence of semi‑liquid evergreen strategies.
Finally, we frequently encounter situations in which a semi‑liquid European fund is classified as closed‑ended under EU rules, yet marketed as open‑ended because the terminology mirrors that used for a parallel U.S. vehicle. In these circumstances, sponsors should provide explicit disclosures highlighting the differences between EU and U.S. concepts, as the same labels may carry different regulatory meanings. Branding a fund as open‑ended when it is, from a European regulatory standpoint, closed‑ended may conflict with the prohibition on misleading information in marketing communications.
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