When attempting to enable User Profile Disks on a RDS Session Collection with the VHD files stored on a remote server, you may get the following error:
This error can occur if the activation process is not able to set the required security permissions on the folder.
The handling of UPDs is done by the RDS server itself, and therefore, the computer account needs to have full access permissions on the folder where the VHD files are stored. When enabling UPD, Server Manager will automatically attempt to set up the necessary permissions. When this fails, the above error is displayed.
One such scenario can occur if the shared folder where VHD files are to be stored is a subfolder of a share, i.e. \\server\share\folder1\folder2. You'll then notice the correct permission was set up on the share itself, but not on the subfolders.
To workaround the issue, manually add Full Control to the computer account of the RDS server(s) that will run the Session Host: