CSSF tightens valuation standards for less liquid and illiquid assets

Scope and background

• The CSSF published on 4 June its Feedback Report on its Thematic Review on the valuation framework for less liquid and illiquid assets (e.g., private equity, real estate, infrastructure, private debt or fund of funds, as well as the so-called “trash ratio” investments of UCITS, including unlisted securities or listed securities that are not actively traded).
• Considering the growth of AIFs investing in less liquid and illiquid assets, the increasing participation of retail investors in these funds, and the current geopolitical uncertainties, valuation risk remains a key supervisory priority of the CSSF in 2026.
• Although the Thematic Review focused on open-ended AIFs and UCITS, its observations and recommendations also pertain to closed-ended AIFs, where applicable.

CSSF guidance

The written valuation policies and procedures must provide an adequate description and documentation of the valuation approaches and methods applied to the various types and categories of assets (e.g., market approach, income approach, replacement cost approach).

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 valuations.

Valuation models must be:

• (i) validated by a person with sufficient expertise and who has not been involved in the process of building that model (i.e. independent valuation requirement); and
• (ii) brought to the attention of, and approved by, the senior management of the IFM.

Internal governance arrangements of IFMs must provide for adequate preparedness for performing valuation under exceptional situations / stressed market conditions (e.g., passing from a transaction-based valuation for real estate to an income model-based valuation).

Lessons learnt from past episodes must be considered in the context of the periodic review of valuation policies and procedures.

Other assets (i.e., other than financial instruments) held by open-ended AIFs must be valued at least once a year and every time there is evidence that the last determined value is no longer fair or proper.

AIFMs must put controls in place to verify, at any NAV calculation date, that the last determined value is still fair or proper.

IFMs must perform a comprehensive assessment of whether, for the AIFs they manage, they are exposed to a material risk of inappropriate valuation.

Where such a risk exists, they must define appropriate checks and controls concerning the reasonableness of individual values and implement such controls in accordance with an appropriate risk-based approach.

When valuations are performed by an external valuer, the valuation policies and procedures of the AIFMs must 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 (including, for instance, valuation reports).

These checks and controls should ensure the reliability and reasonableness of the data / inputs and elements feeding the valuation methodologies / approaches applied.

In addition, the AIFMs are required to conduct thorough due diligence and maintain ongoing oversight of such external valuers.

The valuation policies and procedures must be reviewed at least on a yearly basis and prior to the fund engaging with a new investment strategy or a new type of asset that is not covered by the actual valuation policy.

A timely and appropriate escalation process for valuation issues / problems (i.e., fund-specific or market-driven) must be provided for in the valuation policies and procedures, to both the senior management / dirigeants of the IFM and the dirigeants of the AIFs / UCITS.

What you are supposed to do next

The CSSF asks all IFMs to carry out a benchmarking exercise against the observations and recommendations in the Report and to proceed with the necessary corrective measures.