CSSF Illiquid Asset Valuation Review: What Luxembourg IFMs Must Address

ByOfficer

Last updated: June 2026

Value an illiquid asset wrong and the error does not stay contained. It feeds straight into the net asset value, into the price at which investors subscribe and redeem, and sometimes into a modified audit opinion. The CSSF illiquid asset valuation review, published on 4 June 2026, sets out where Luxembourg fund managers fall short and what they are now expected to fix.

The document is a Feedback Report from an ad-hoc thematic review the CSSF ran from the end of 2023 through 2024 and 2025. It looked mainly at authorised alternative investment fund managers (AIFMs) in private equity, real estate, infrastructure, private debt and funds of funds. It also covered, on an ancillary basis, UCITS investing under Article 41(2) of the Law of 17 December 2010, the trash ratio: unlisted securities or listed instruments not actively traded.

The sample was limited, so the conclusions cannot be read across the whole market. The expectation applies to everyone: the CSSF asks all investment fund managers (IFMs, meaning both AIFMs and UCITS management companies) to benchmark their practice against its observations and take corrective measures where needed.

Related reading: AIFMD II liquidity management tools

What the CSSF illiquid asset valuation review covers

This is not a fresh supervisory theme. ESMA launched a Common Supervisory Action (CSA) in January 2022 with national regulators on the valuation rules under the UCITS and AIFM frameworks, published its final report on 24 May 2023, and the CSSF issued its own feedback report on 18 July 2023 with a 31 December 2023 deadline to close gaps. The 2026 thematic review extended that work to Luxembourg IFMs outside the CSA sample. It also lands days after IOSCO published, on 1 June 2026, its final report on valuing collective investment schemes, consolidating its 2007 hedge fund and 2013 CIS valuation principles.

The legal basis behind the findings

For AIFMs the anchor is Article 17 of the AIFM Law, the Law of 12 July 2013 transposing the AIFMD, read with Articles 67 to 74 of Commission Delegated Regulation (EU) No 231/2013. Article 17(1) requires appropriate and consistent procedures for a proper and independent valuation; Article 17(10) makes the AIFM responsible for the valuation, the NAV calculation and its publication. For UCITS, the CSSF anchors the valuation framework in the UCI Law and CSSF Regulation 10-4, in particular Article 9(3), which requires appropriate procedures for the proper and accurate valuation of UCITS assets and liabilities. Point 526 of Circular CSSF 18/698 then recommends that UCITS management companies comply with the AIFM valuation-function rules in sub-chapter 6.6.

Where valuation policies fall short

Article 67(1) bars an AIFM from investing in a type of asset for the first time until it has identified an appropriate valuation methodology, and Article 70(1) requires the policy to be reviewed before a new strategy or asset type and at least once a year. Most firms had a formalised pre-launch process; a limited number did not. When I review a Luxembourg valuation policy, I check first whether it was written for the local IFM or lifted from a group manual, the gap the CSSF flagged: some firms ran policies from group entities not adapted to the local IFM, and some did not review them yearly.

Frequency is the next trap. Article 74 requires financial instruments held by open-ended AIFs to be revalued every time the NAV per unit is calculated, while other assets such as real estate, private equity and loans must be valued at least once a year and every time there is evidence the last value is no longer fair or proper. Treating the annual floor as the rule and missing the Article 74(2) trigger is a common error; the CSSF wants valuation frequency aligned with the NAV.

On methodology, the market approach dominates real estate and private equity, the income approach (mostly discounted cash flow) dominates infrastructure and private debt, and replacement cost is rare. UCITS trash-ratio holdings use the market or income approach with haircuts where warranted. Where a model is used, Article 68 requires it and its main features to be explained and justified in the policy, and a limited number of firms did not describe their approaches and models in enough detail. International standards, mainly RICS for real estate and IPEV for private equity, are treated as good practice and, where an offering document promises them, must be applied consistently.

Models, stressed markets and escalation

Model governance is precise in the rules and loose in practice. Article 68(2) requires a model to be validated, before use, by a person with sufficient expertise who did not build it, and Article 68(3) requires the senior management of the AIFM to approve it before use. The CSSF found, in limited cases, models put into use without that approval and without an adequate periodic review, and it warns that IT-based models carry formula errors that quietly corrupt the output, a systems concern that overlaps with DORA compliance for Luxembourg fund administrators. A change to a model’s main feature, such as the discount-rate method, has to go back through independent validation and senior-management approval.

Stressed markets are where a rule is widely misread. Article 17(1) of the AIFM Law and Article 71(1) of the Delegated Regulation require all assets to be fairly and appropriately valued at all times. It does not mean a firm needs a separate stressed-market policy, nor that a different methodology is automatically required for assets already valued on a model. It means the policy has to let the firm produce reliable valuations in every market condition. A limited number of firms did not address exceptional conditions at all, and most of those were already revising their framework.

Articles 67(2) and 71(4) require escalation channels for differences in value and other valuation problems, and the CSSF found that a limited number of IFMs lacked escalation to both the senior management or dirigeants of the IFM and the dirigeants of the AIF or UCITS. Point 417 of Circular CSSF 18/698 lists non-delegable IFM tasks. Where no representative price exists, the IFM must ensure that the UCI’s management or governing body has taken a decision on the probable realisation value, estimated with care and in good faith, or give that body the support needed for that decision.

Valuation controls during the holding period

The most instructive finding concerns the material risk of inappropriate valuation. Article 71(2) lists situations that create such a risk: a price available only from a single broker or counterparty, a valuation influenced by parties related to the AIFM, or by entities with a financial interest in the fund’s performance. A majority of AIFMs decided they were not exposed. Yet the CSSF found some of them had real valuation problems, surfaced by their statutory auditors, because they had not factored fund-level information into their self-assessment. Concluding there is no material risk without checking what the audit already flagged is the error that matters most.

The control I have seen prove its worth is the dull one: backtesting, comparing the price an asset realised on exit against its last carrying value. Article 71(3) frames the checks on the reasonableness of individual values, and firms reported testing for stale prices and reviewing the inputs to which a model’s price is most sensitive.

The third-party trap and the independence test

Output controls were generally in place: a secondary approach to corroborate a primary one, review of the financial statements and audit opinion of investee companies and target funds, and calibration, which anchors a model to the entry price and updates the inputs at each later date. A few firms lacked the controls to test data quality and the reasonableness of mark-to-model prices.

The harder issue is reliance on others. Using an external valuer or third-party valuation service provider is normal, and delegated managers or advisers often feed in inputs. Where the AIFM performs the valuation function itself and relies on a third-party expert, point 534 of Circular CSSF 18/698 confirms its liability to the fund and investors is not affected: the expert’s report does not move the responsibility. And under Article 17(4) of the AIFM Law and Article 67(4) of the Delegated Regulation, the valuation function must be functionally independent from portfolio management; where a group entity does valuation-related work, especially on a delegation basis with fees linked to NAV, that conflict has to be managed. Some firms did not clearly demonstrate independence or document the controls over third-party inputs.

What the CSSF expects you to do now

The Feedback Report is not a new rule. It reads requirements already in force, in Article 17 of the AIFM Law, Articles 67 to 74 of the Delegated Regulation, and CSSF Regulation 10-4, and explains how the CSSF expects them to be met. Every IFM is expected to benchmark its valuation policies, procedures and controls against the observations and fix any gap, including for closed-ended AIFs where the regulation supports them. Those values feed fund-level oversight and supervisory reporting. The CSSF also links valuation weaknesses to audit reports and management letters, including the UCI self-assessment and management-letter process under Circular CSSF 21/790; IFM-level SAQ and management-letter requirements sit separately under Circular CSSF 21/789. Keep evidence of the benchmarking exercise and any corrective measures so the IFM can support its approach in the next SAQ, management-letter review or supervisory interaction.

Frequently Asked Questions

Who does the CSSF illiquid asset valuation review apply to?

It applies to all Luxembourg investment fund managers, both authorised AIFMs and UCITS management companies. The AIFM focus was private equity, real estate, infrastructure, private debt and funds of funds; UCITS for their Article 41(2) trash-ratio holdings.

Is the Feedback Report a new regulation?

No. It interprets existing requirements in Article 17 of the AIFM Law, Articles 67 to 74 of Delegated Regulation (EU) No 231/2013, and CSSF Regulation 10-4.

How often must illiquid assets be revalued?

Under Article 74, financial instruments in open-ended AIFs are revalued at each NAV calculation. Other assets are valued at least once a year and again whenever evidence shows the last value is no longer fair or proper.

Does using an external valuer or third-party expert transfer the AIFM’s responsibility?

No. Where the AIFM values internally and uses a third-party expert, point 534 of Circular CSSF 18/698 confirms its liability to the fund and its investors is not affected. The expert supports the work but does not assume it.

Do we need a separate valuation policy for stressed market conditions?

Not necessarily. The CSSF does not require a separate policy or an automatic methodology change, only that the policy supports reliable valuations in all market conditions, stressed ones included.

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Key Takeaways

  • The CSSF published its valuation Feedback Report on 4 June 2026, asking every IFM to benchmark and take corrective measures.
  • The legal anchor is Article 17 of the AIFM Law with Articles 67 to 74 of Delegated Regulation (EU) No 231/2013, and Article 9(3) of CSSF Regulation 10-4 with Circular CSSF 18/698 for UCITS.
  • Article 74(2) requires revaluation of other assets whenever the last value is no longer fair or proper, not only at the annual floor.
  • Models must be validated before use by someone who did not build them (Article 68(2)) and approved by senior management (Article 68(3)).
  • Some AIFMs that judged they had no material valuation risk had problems already raised by their auditors; fund-level information must feed the self-assessment.
  • A third-party expert does not transfer the AIFM’s liability (point 534 of Circular CSSF 18/698), and the valuation function must be functionally independent from portfolio management.

Sources and References

Valuation policies now have to prove themselves

The shift in this report is one of evidence. Naming the right approaches in a valuation policy is no longer enough. The CSSF wants the policy adapted to the Luxembourg manager, the models validated and approved, the controls documented and run, and the valuation function’s independence demonstrable. A reporting officer who treats the benchmarking as real work, recording corrective measures against each gap, will stand in a stronger position when the next on-site visit asks what changed.

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.

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