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Ch. 7
Risk Management by Fund Type
UCITS vs AIF vs SIF vs MMF — risk framework, leverage limits, stress testing, NAV valuation
| Criterion | UCITS | AIF (full AIFM) | SIF | MMF |
|---|---|---|---|---|
| Risk Framework Basis | CSSF Circ. 11/512; ESMA guidelines; 2010 Law | AIFMD; CSSF Circ. 18/698 RMP document | SIF Law + CSSF Reg. 15-07; AIFMD if above thresholds | EU MMF Regulation 2017/1131 + ESMA guidelines |
| Global Exposure Method | Commitment approach (≤100% NAV) OR Relative VaR (≤2× ref) OR Absolute VaR (≤20% NAV) | Gross method + Commitment method (both required) | Risk-based; no hard global exposure rule | WAM/WAL limits; daily liquidity buckets |
| Leverage Limit | 100% of NAV (commitment) or VaR-based | Set by AIFM; disclosed to investors and CSSF; no universal cap (except LOAIFs) | No hard leverage limit (principle-based) | Very restricted — no equity, no borrowing for investment |
| Leverage Reporting | Prospectus + annual report disclosures | Both gross and commitment methods to CSSF periodically | Via AIFM reporting if above thresholds | N/A (no leverage) |
| Liquidity Stress Testing | At least annually (CSSF 20/752) | At least annually (AIFMD; except unleveraged closed-ended AIFs) | Required; frequency per risk framework | Bi-annual minimum; severe scenarios required |
| LMTs (from Apr 2026) | At least 2 LMTs (beyond suspension) | At least 2 LMTs (beyond suspension) | N/A (closed-ended typically) | N/A |
| NAV Error Threshold | 0.5% — above triggers investor compensation (CSSF Circ. 24/856) | 0.5% standard; per AIFM valuation policy | 0.5% standard | Mark-to-market daily; 10bp deviation threshold (CNAV/LVNAV) |
| Valuation Standard | Fair value; OTC derivatives daily; verifiable independently | Detailed AIFM valuation policy; independent valuation function | Fair value principle; documented policy | Mark-to-market preferred; amortized cost only for CNAV (limited LVNAV conditions) |
| Backtesting Required | Yes — for VaR methods; daily | Yes — for VaR; per risk framework | Yes — per risk framework | Internal credit assessment; ongoing monitoring |
| CSSF Communication | Risk system description; annual updates; UCITS risk reporting | Annual RMP document (Circ. 18/698 App. I); leverage reports; material change notifications | Risk system in authorization; CSSF notification of material changes | MMF reporting per MMF Regulation |
| Risk Function Independence | Independent from portfolio management (unless non-proportional) | Permanent; independent from portfolio management | Permanent risk function required | Internal credit quality assessment team |
| Professional Liability Cover | Own funds requirement covers operational risk | Additional own funds OR professional indemnity insurance | Principle-based | N/A |
📌 Data sourced from Lux Investment Funds 2025, Chapters 7. Verify current requirements with CSSF at cssf.lu.