Valuation in 2026 : The CSSF expectations are rising

The valuation of less liquid and illiquid assets is becoming an increasingly important supervisory focus for Luxembourg investment fund managers.

The CSSF has published a thematic report on valuation practices, highlighting areas where weaknesses remain and where stronger governance, documentation and oversight are expected. Combined with the entry into force of the Luxembourg law transposing AIFMD II, these developments reinforce the responsibilities of Management Companies and AIFMs in ensuring that valuation processes are independent, robust and demonstrable.

For managers operating funds with complex or less liquid portfolios, valuation can no longer be viewed as a purely operational or administrative process. It is a core control function, directly linked to investor protection, risk management and the reliability of the Net Asset Value.

Valuation Is Becoming a Governance Matter

The regulatory expectations surrounding valuation are increasingly focused not only on the outcome of the valuation, but also on the governance and processes supporting it.

A valuation must be explainable, challenged and evidenced. The manager should be able to demonstrate why a particular valuation methodology was selected, which sources were used, how assumptions were determined and how potential conflicts of interest were addressed.

This is particularly relevant where assets cannot be valued using readily observable market prices. In such circumstances, reliance on external providers, valuation models or alternative pricing sources increases the importance of a well-documented and independently controlled valuation framework.

The CSSF’s thematic work reinforces this direction: valuation processes need to be sufficiently structured and transparent to withstand supervisory and audit scrutiny.

Strengthening the Independence of the Valuation Function

One of the central themes emerging from the regulatory framework is the need for effective independence between valuation and portfolio management.

The valuation function should be organised in a way that prevents investment decisions from influencing the determination of asset values. This requires more than simply assigning valuation responsibilities to a different individual or department. The governance framework should provide appropriate safeguards against conflicts of interest and undue influence.

The remuneration arrangements of professionals involved in valuation are also relevant. Incentive structures should not create inappropriate links between valuation outcomes and the investment performance of the portfolios being valued.

For Management Companies and AIFMs, this means being able to demonstrate that the valuation function has the appropriate authority, expertise and organisational standing to challenge investment teams when necessary.

Independence must therefore be visible in the operating model, documented in policies and procedures, and supported by appropriate escalation mechanisms.

Strengthening Oversight of External Valuation Providers

External valuation providers can bring valuable expertise, particularly for complex, private or illiquid assets. However, outsourcing the valuation activity does not eliminate the manager’s responsibility to maintain an effective oversight framework.

The CSSF has identified weaknesses in the oversight of third-party valuation activities. Managers should therefore be able to demonstrate a clear understanding of the methodologies, data sources and assumptions underpinning valuations received from external providers.

The selection of pricing sources should be properly justified and documented. Where different sources are available, the manager should be able to explain why a particular source has been selected and how its reliability is assessed.

This becomes particularly important when valuations rely on models rather than observable market prices. In such cases, the manager should ensure that appropriate independent challenge and review of the methodology, assumptions and key inputs used to determine the valuation.

Valuation oversight should not be reduced to checking whether a report has been received on time. It should provide sufficient evidence that the valuation is reasonable, consistent with the applicable methodology and supported by reliable information.

Where appropriate, retrospective analysis and backtesting can provide an additional control mechanism by comparing historical valuations with subsequently observed market data or transaction prices. Such controls can help identify persistent biases, inappropriate assumptions or weaknesses in valuation methodologies.

The objective is clear: the valuation process must be traceable, explainable and defensible.

AIFMD II: Responsibility Remains with the AIFM

The implementation of AIFMD II further reinforces the importance of valuation governance.

The use of an external valuer does not transfer the AIFM’s ultimate responsibility for the proper valuation of the assets and the calculation of the Net Asset Value. Delegation may provide access to specialised expertise, but it does not remove the need for effective oversight and challenge.

This principle is particularly important for AIFMs managing complex or illiquid portfolios. The manager must retain sufficient knowledge and understanding of the valuation process to identify inconsistencies, challenge assumptions and escalate significant concerns.

The relationship between valuation and risk management is also becoming more important.

A significant valuation uncertainty, pricing anomaly or deterioration in the reliability of valuation inputs may have consequences beyond the NAV itself. In certain circumstances, such events may need to be assessed alongside liquidity risk and the potential use of Liquidity Management Tools.

Valuation should therefore not operate in isolation. It forms part of a wider control framework connecting valuation, risk management, liquidity management and investor protection.

The Luxembourg perspective

Luxembourg occupies a central position in the European investment fund industry and has developed a sophisticated ecosystem around alternative investment management.

Its international fund structures frequently involve multiple jurisdictions, specialised service providers and portfolios combining liquid, private and less liquid assets. This complexity makes robust valuation governance increasingly important.

For Luxembourg Management Companies and AIFMs, the challenge is therefore not simply to produce a NAV.

The challenge is to demonstrate that the NAV is supported by a reliable, independent and appropriately governed valuation process.

Regulatory scrutiny is increasingly moving beyond the existence of policies and procedures. Supervisors expect firms to demonstrate how those frameworks operate in practice, how challenges are documented, how exceptions are escalated and how management can obtain comfort over the reliability of the valuation process.

In this environment, valuation governance should be approached as an ongoing control framework rather than a periodic calculation exercise.

How can Osmia Consulting help you ?

Osmia Consulting combines Luxembourg regulatory expertise with practical experience in governance, risk management and financial-sector operations. We help organisations identify where their current valuation framework may fall short of regulatory expectations and translate those expectations into practical processes and controls.

At Osmia Consulting, we help our clients turn regulatory expectations into robust and workable frameworks.

Contact us to discuss how we can support your valuation governance and regulatory readiness.