Luxembourg IFMs' Valuation Framework: CSSF Regulatory Expectations and Recommended Areas of Improvement for Less Liquid and Illiquid Assets

Further to the ad hoc thematic review it launched in 2023 (“Thematic Review”) and the review work conducted in 2024-2025 with a representative sample of Luxembourg investment fund managers (“IFMs”), the CSSF published its feedback report on 4 June 2026 on the valuation framework of AIFs and UCITS investing in less liquid and illiquid assets, such as private equity, real estate, infrastructure, debt and fund of funds for AIFs as well as unlisted and listed investments falling in the so-called “trash ratio” for UCITS (the “Feedback Report”).

The Feedback Report provides Luxembourg IFMs with guidance in relation to the implementation and maintenance of robust and appropriate valuation policies and procedures as well as valuation controls in place during the life cycle of the investments for the AIFs/UCITS they manage and that are invested in less liquid/illiquid asset categories. It sets out, more particularly, a number of CSSF’s observations, recommendations and expectations which aim at harmonising and enhancing the valuation practices of IFMs in certain areas, including (but not limited to) valuation under stressed market conditions, escalation procedures and controls over the inputs received from third-parties.

For Luxembourg IFMs, this Feedback Report is a clear signal that valuation risk remains a remains a key supervisory priority of the CSSF in 2026. A careful review and gap analysis of their current valuation framework against the CSSF’s expectations described below may help identify areas requiring remediation, particularly for those AIFs/UCITS investing in less liquid/illiquid assets.

1. Actions to be initiated by IFMs 

All Luxembourg IFMs, including AIFMs and UCITS ManCos, are expected to carry out a benchmarking exercise against the CSSF’s observations and recommendations contained in the Feedback Report and, if applicable, to proceed in a next step to the necessary corrective measures. Although the Thematic Review focused on open-ended AIFs and UCITS, the CSSF indicates that the Feedback Report and its related observations and recommendations also pertain to closed-ended AIFs based on applicable regulations.

2. Summary of CSSF observations and expectations 

2.1. Valuation Policies and Procedures 

As part of its Thematic Review, weaknesses in IFMs’ valuation policies and procedures have been identified by the CSSF. In its Feedback Report, the CSSF restated key principles and emphasised on its expectations in relation to certain specific valuation aspects, as summarised below. 

• Adequate valuation processes for new (sub-)funds and new asset types – The CSSF expects that the written valuation policies and procedures of IFMs provide for an adequate and formalised review of all material valuation aspects: 
  - prior to the launch of new (sub-)funds, including all investments that might be made upon launch of these (sub-)funds; and
  - before investing in a new investment strategy or new type of assets.
• Valuation frequency – The CSSF draws particular attention to the fact that:
  - written valuation policies and procedures of IFMs should provide for checks and controls that ensure, in particular for (sub-)funds investing in less liquid/illiquid investments, that the valuation frequency of the investments is appropriate with regard to the NAV calculation frequency of the concerned (sub-)fund;
  - for “other assets” held by AIFs (i.e. those that do not fall in the scope of “financial instruments” such as real estate, private equity and loans), in case there is evidence that the last determined value for such assets is no longer fair or proper, the IFM has to proceed with a (re)valuation of these assets. For complying with this provision, the IFM has to ensure that the necessary valuation controls are in place for verifying at any NAV calculation date that the last determined value is still fair or proper.
• Valuation methodologies/approaches – The CSSF expects that:
  - the written policies and procedures of IFMs generally provide for an adequate description and documentation of the valuation approaches and methods applied to various types and categories of assets. This includes, where valuation models are used, a clear explanation and justification of the models and their main features, such as the underlying data, the assumptions on which they rely, the rationale for their use and the limitations inherent in model-based variation, etc. ;
  - as regards international recognised valuation standards and/or guidelines, which are considered as a good market practice by the CSSF to promote sound and consistent valuation standards and practices, the CSSF expects, in case such valuation standards/guidelines are provided for in the AIFs’ offering documents or disclosure to investors, that they should consistently be applied in order to ensure a reliable valuation on an ongoing basis in accordance with the information disclosed to investors.
• Use of valuation models and related approvals/reviews – The CSSF expects (i) the senior management of IFMs to proceed to a prior approval (i.e. before being used) of the valuation models and (ii) the IFMs to have adequate periodic review processes in place concerning the valuation models for ensuring their ongoing appropriateness and adequate design. In that context, the CSSF emphasised that the valuation policies and procedures should:
  - in case of changes made to the main features of a model, (i) reflect these changes, (ii) provide for an independent validation and (iii) provide that these changes are brought to the attention and approved by the senior management of the IFM;
  - be subject to, at least annual, reviews and that these reviews (including the involvement of the senior management) are subject to an adequate documentation.
• Valuation in exceptional situations/stressed market conditions – The CSSF restates the importance of valuation policies and procedures addressing the valuation processes applicable under exceptional situations/stressed market conditions. On that basis, the CSSF expects that:
  - the internal governance arrangements of IFMs, including the allocation of tasks and responsibilities at IFMs (including at third-party expert/third-party valuation service provider level), provide for an adequate preparedness for handling exceptional situations/stressed market conditions;
  - the valuation processes and methodologies allow IFMs to respond quickly to changing circumstances and to ensure assets continue to be valued fairly on an ongoing basis;
  - IFMs also take into account, as part of the regular review of valuation policies and procedures, the lessons learned from past stress events and assess the valuation risks arising from the types of funds and investments they manage.
• Escalation process in case of significant valuation issues – The CSSF expects that the valuation policies and procedures of IFMs provide for specific provisions ensuring a timely and appropriate escalation process of the valuation issues/problems (i.e. fund-specific or market-driven) to both (i) the senior management/management body of the IFM and (ii) the board of directors/managers/general partner (as applicable) of the AIF and UCITS managed.

2.2. Valuation Controls

While this section of the Feedback Report is primarily relevant for AIFMs managing AIFs investing in less liquid/illiquid assets, the CSSF recommends that IFMs also consider the below observations and recommendations for the investments included in the trash ratio of the UCITS under management. 

• Pre-investment valuation checks and controls – The CSSF expects that the written valuation policies and procedures of IFMs managing AIFs provide, in accordance with a risk-based approach, for the necessary specific and appropriate checks and controls prior to investment decisions. It further recommends that IFMs set out in their valuation policies/procedures the allocation of responsibilities concerning these checks and controls and in particular the role/contribution of the valuation function of the IFM to the execution of these checks and controls, when deemed necessary in accordance with a risk-based approach.
• Valuation controls and reviews during the investment period until disposal
  a. Material risk of inappropriate valuation and related checks/controls of individual values of assets – The CSSF expects IFMs to perform a comprehensive assessment whether, for the funds they manage, they are exposed to a material risk of inappropriate valuation. For IFMs exposed to such a risk, the CSSF expects IFMs to define appropriate checks and controls concerning the reasonableness of individual values and to implement such controls in accordance with an appropriate risk-based approach.
  b. Controls in relation to valuation models and their output – The CSSF emphasises that the implementation of dedicated valuation checks and controls for assets valued through valuation models is a cornerstone to ensure a robust and sound valuation framework. On that basis, the CSSF expects that the valuation policies and procedures of IFMs provide for specific and appropriate valuation checks and controls of the valuations derived from valuation models by applying an adequate risk-based approach and that the IFMs duly consider the results of these checks and controls in order, in particular, to identify any potential limitations or issues in the valuation models (i.e. assumptions, inputs and approach) and thereby properly assess whether any adjustments to the valuation approaches in place would be required in such circumstances. 
  c. Review of valuation reports from third-party experts – The CSSF expects that:
  - the valuation policies and procedures of IFMs provide for the necessary specific and appropriate checks and controls, carried out in accordance with a risk-based approach, over the inputs/information received from third-party experts/third-party valuation service providers for the valuation (including, for instance, valuation reports). These checks and controls should ensure and provide for the reliability and reasonableness of the data/inputs and elements feeding the valuation methodologies/approaches applied to the relevant less liquid/illiquid assets, thereby ensuring that these assets are properly and fairly valued on an ongoing basis; and
  - IFMs conduct thorough due diligence and maintain ongoing oversight of such third-party experts/third-party valuation service providers.

3. How we can help

Our dedicated [Regulatory & Compliance/Asset Management & Investment Fund ] Team is here to help Luxembourg IFMs to:

• benchmark their current valuation framework against the observations and recommendations set out in the Feedback Report and determine the relevant corrective measures (if applicable) efficiently and pragmatically to ensure compliance with the CSSF’s regulatory expectations depending the asset types of the AIFs/UCITS managed;
• review and update, as appropriate, their valuation policies and procedures and the valuation controls in place for the AIFs/UCITS managed.

Should you wish to receive more information in respect of the above and discuss how best we can support you, please feel free to reach out to your usual contact persons at Elvinger Hoss Prussen.