As Luxembourg strengthens its position as one of the world's largest alternative investment centres—overseeing almost €3 trillion in assets—the governance of asset valuation is becoming a strategic issue rather than a purely technical exercise.
The shift is reinforced by high-profile valuation controversies abroad where questions over valuation practices intensified during market stress and highlighted the importance of independent pricing
Paperjam already reported the results of the first Luxembourg Valuation Survey, conducted jointly by Alfi and Kroll. This article explores two themes in greater depth – transparency and independence – with Elena Moisei, head of portfolio valuation at Kroll Advisory Luxembourg, and Christopher Georgeson, senior vice president managing industry affairs at Alfi.
Luxembourg: From oversight to ownership
Moisei highlighted a significant professionalisation of the local market, with 44% of respondents now conducting valuation directly in Luxembourg. This is a significant rise from an estimated 5% to 10% just a decade ago, marking “a transition from a mere oversight role to one of active ownership,” she argued.
This increase in local expertise is supported by a growing generation of qualified professionals, including CFA charterholders and members of the Luxembourg Valuation Professionals Association (LVPA), observed Georgeson. These individuals are now leading technical exchanges that were once the exclusive domain of cities like London, Frankfurt or Paris. “Brexit has changed things,” said Moisei. She argued that expertise is no longer just imported; it is increasingly being developed locally.
Georgeson said management companies typically maintain dedicated valuation staff in Luxembourg to meet their governance and oversight responsibilities under AIFMD.
When asked how investors can be confident that independent reviews are genuinely separate from front-office functions, Georgeson pointed to several layers of oversight. He stressed that independent valuers, auditors and the CSSF all scrutinise valuations, requiring firms to justify key assumptions such as growth and discount rates, making it difficult for undue front-office influence to go unchecked.
“There's a bit of a tale of two markets,” Georgeson said. “If you try to launch a liquid fund without a strong valuation process, the CSSF will be on your doorstep to challenge you.”
Independence varies by asset class
Independence remains a nuanced topic, with Moisei noting that the use of third-party valuation providers varies significantly by asset class. In private debt, the use of independent providers is at 54%, the highest in the survey, whereas in infrastructure, investors appear more comfortable with the manager’s internal capabilities.
In real estate, the level stands at 50% in a complex “buy versus build” dynamic. Georgeson stressed that the number goes up to 80% to 90%; many managers purchase third-party valuation tools while relying on local experts—for example, a property valuer in Greece—but still retain ultimate responsibility for the valuation.
The speakers emphasised that independence is a tool for investor comfort, especially in sectors where market prices are not readily available.
Pricing transparency and the shopping myth
A central point of discussion was the transparency of private market pricing and the potential for “valuation shopping”—the practice of seeking the most favourable valuation. The Wall Street Journal recently reported that some firms had adopted valuation methodologies allowing private asset funds to record generous mark-ups on secondary investments, sometimes within days of purchasing them. The article was later cited by the CFA Institute.
Moisei noted she has never personally observed the practice. She argued that provided there is a transparent framework with disclosed assumptions, the choice of provider is secondary given the intense scrutiny. Rigorous oversight by auditors and management companies acts to ensure the integrity of financial reporting.
While some critics suggest managers might switch providers to avoid markdowns, Georgeson argued this is too expensive and time-consuming to be a widespread reality. Similar concerns have historically arisen in other financial markets. For example, the elevated costs of credit rating agencies have not prevented debt issuers from shopping for better credit ratings, a practice largely curtailed but still prevalent, according to research by Karimov, Kara, Downing and co-authors.
Valuation confidence comes before liquidity
Georgeson stressed that CSSF-regulated funds or “manager-regulated funds” have the same rules and policies and procedures as dictated by the Luxembourg regulator. Regulations dictate tolerance levels for valuation differences.
For closed-end funds, a 5% tolerance applies between the price assessed by the auditor and that of the asset management company; for funds requiring daily liquidity, that tolerance tightens to less than 50 basis points, according to Georgeson.
The Alfi representative acknowledged that a lack of confidence or “lag” in pricing information for private assets may result in the use of liquidity management tools to “pause issuing a NAV.” He stressed that managers may prefer to be “100% right” than push adjustments they cannot fully support. He argued that such a “discipline reflects the robustness of the valuation process rather than any weakness.”
