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CSSF valuation of illiquid assets: the controls Luxembourg IFMs should test before 9 October

Javier RojewskiCo-founder · CCO
A white valuation tile resting on the violet Klavius ribbon
In brief

The CSSF has asked every Luxembourg IFM to benchmark its valuation framework against the findings of its 2026 thematic review and correct the gaps. For private equity, real estate, infrastructure, private debt and fund-of-funds strategies, the message is practical: a model is not a control. The record must show why the method fits the asset, which inputs were challenged, when the value was reconsidered, who approved changes and how significant issues reached both the IFM and the fund's governing body.

On 4 September 2026, the CSSF and ALFI announced a valuation webinar for 9 October. Its centrepiece is the CSSF's thematic review of valuation frameworks for less liquid and illiquid assets, published in June, together with recent valuation developments. The invitation is aimed at the people who own the process: boards, conducting officers, valuation officers, compliance, risk, fund administrators and depositaries (CSSF, 4 September 2026).

The timing is useful. The report does not merely describe a sample. It asks all investment fund managers to compare their framework with the findings and take corrective measures where needed. This article turns that request into a control list that can be discussed before the webinar, while there is still time to submit a focused question.

Why this review matters beyond the sampled firms

The CSSF launched the review at the end of 2023 and carried out the work through 2024 and 2025. It focused primarily on AIFMs managing private equity, real estate, infrastructure, private debt and fund-of-funds strategies. It also covered less-liquid holdings within the Article 41(2) limit of UCITS, including unlisted instruments and listed securities that are not actively traded. Although the sample was limited, the observations apply to open-ended AIFs and UCITS and, where the rules fit, to closed-ended AIFs as well (CSSF communication, 4 June 2026).

The legal spine is familiar: Article 17 of the Luxembourg AIFM Law, Articles 67 to 74 of Delegated Regulation (EU) No 231/2013 and sub-chapter 6.6 of Circular CSSF 18/698. The circular also recommends that UCITS ManCos follow the same organisational provisions for the valuation function. What has changed is the level of supervisory detail around how an IFM proves that those rules operate in practice.

The first valuation problem is often evidence, not methodology

The report makes one observation worth carrying into every gap analysis. In the valuation issues identified through the CSSF's wider supervisory work, the dominant cause was missing or inadequate information and documentation; an unsuitable valuation methodology was a less frequent cause. In a limited number of cases, those weaknesses contributed to modified audit opinions or management-letter findings.

Most valuation issues seen by the CSSF started with insufficient supporting information or documentation, not with the choice of model. CSSF Feedback Report, pages 7–8.

That distinction matters. A policy can name the market, income and cost approaches correctly and still fail the supervisory test. The evidence has to show why a method was selected for this asset, where its inputs came from, what challenged them, whether the result remained fair at the next NAV and who acted when uncertainty became material.

Seven controls the CSSF expects to see

  1. A valuation gate before launch or first investment. Before a new sub-fund launches or a strategy buys a new asset type, the IFM should formally confirm that the methodology, data, independent sources and operational capacity exist to value it throughout the holding period. The review must cover every investment the strategy may make, not only the first transaction.
  2. Valuation frequency that can support the NAV. Financial instruments in an open-ended AIF are valued whenever the NAV is calculated. Other assets must be valued at least annually and whenever evidence shows that the last value is no longer fair or proper. If a fresh external appraisal is not produced at each NAV date, the IFM still needs a documented control that tests whether the last value remains usable.
  3. Model governance, not a model inventory. The file should document the reason for the model, its inputs, data sources, assumptions and limitations. The CSSF expects independent validation before use, a periodic review, revalidation after a material change and senior-management approval of the model and significant changes. A spreadsheet version change can be a model change if the valuation logic moved with it.
  4. A process that changes gear in stressed markets. The policy needs triggers, responsibilities, information sources and decision paths for exceptional or stressed conditions. The CSSF does not demand a separate crisis policy or an automatic change of methodology. It does expect the framework to keep producing a reliable value when ordinary evidence becomes stale or a model assumption stops describing the market.
  5. Escalation to two governing levels. A significant valuation issue must reach both the senior management of the IFM and the governing body of the AIF or UCITS, promptly. Sending it only to a valuation committee or resolving it within the IFM is not the full escalation path described in the report.
  6. A risk assessment that reads the auditor's file. The CSSF found that some AIFMs said they were not exposed to a material risk of inappropriate valuation even though funds they managed had significant valuation difficulties reported in audit opinions or management letters. The assessment has to use all fund-level information, not only the valuation team's own record.
  7. Independent challenge of outputs and third-party inputs. The report points to secondary valuation approaches, review of sensitive inputs, calibration and backtesting against realised exit prices. For multiples, that means challenging peers, selected multiples and the bridge from enterprise to equity value. For DCF, it means testing growth, margins, terminal value, discount rates, cash flows and inflation assumptions. A third-party report is an input, not a transfer of responsibility: the IFM must review it, manage conflicts, perform due diligence and maintain ongoing oversight.

What to put in the next board pack

The report is detailed, but a board does not need 24 pages of regulatory prose. It needs a short line of sight from asset to exception. A useful pack would contain:

  • the funds and asset types in scope, with the valuation method and frequency for each;
  • the date, owner and outcome of the last policy and model review;
  • assets whose last external value was carried forward, and the evidence that it remained fair at each NAV;
  • model changes, overrides and significant assumption movements since the previous meeting;
  • backtesting results, including exits that differed materially from the last carrying value;
  • open audit or management-letter points, with an owner and remediation date; and
  • material valuation issues escalated at IFM and fund level, including the decision taken.

If one of those lines cannot be produced without rebuilding it from emails, valuation reports and committee minutes, that is the control gap to fix first.

Questions worth taking to the 9 October webinar

The CSSF asks participants to send questions at least ten business days before the webinar. Three practical questions follow directly from the review.

  • What evidence does the CSSF consider sufficient at each NAV date when an open-ended fund carries forward the most recent external valuation of an illiquid asset?
  • Which changes to assumptions, formulas or data sources should trigger independent revalidation and senior-management approval of a valuation model?
  • How does the CSSF expect proportionality to work for smaller IFMs that use group models or third-party experts but retain the internal valuation function?

Those questions are narrow enough to elicit an operational answer. They also force the internal discussion that matters: what the IFM can evidence today, not what the policy says it intends to do.

Where Klavius fits

Klavius does not price an illiquid asset or select its valuation model. It keeps the compliance record around that work current. The CSSF's expectations can be mapped into the control library and monitoring plan; each review keeps its source, owner, evidence, finding and due date; and open points can feed the same management information seen by the officers. Regulatory Watch brings the CSSF publication into the record, while an officer decides what becomes a control and signs it off. If this review exposed a gap between the valuation policy, the control spreadsheet and the board pack, the Compliance Risk page shows how Klavius connects them.

Sources

Javier RojewskiCo-founder · CCO
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