Ch. 7ADVANCED ~20 mins

Risk Management & Valuation

NAV calculation, risk systems and liability

▸Keep each fund's risk profile aligned with what the fund documents promise (constitutional docs + prospectus/offering docs)
▸Set quantitative and qualitative risk limits defining the fund's risk appetite; monitor breaches and remediate
▸Run an adequate risk management system (UCITS: "risk management process"; AIF: "risk management system") — reviewed at least annually
▸Maintain a documented risk management policy covering risk identification, assessment procedures, and governance
▸Apply investment-level due diligence so risks are assessed before and while investing
▸Have a risk management function independent from portfolio management (unless non-proportional — then safeguards must exist)
▸Perform backtesting (to validate model-based measurement) and stress/scenario tests including extreme scenarios
▸Provide CSSF a description of the risk system; disclose risk profile info to investors and regulators

Two Layers of Risk Responsibility

Risk management covers: (1) risks of the funds — market, credit, liquidity, counterparty, concentration, operational; and (2) risks of the management entity itself — business/operational resilience. Own funds requirements and (for AIFMs) professional liability cover are linked to the second layer.

Risk Category	UCITS Key Source	AIF Key Source
Market risk / global exposure	CSSF Circular 11/512; ESMA guidelines	AIFMD; CSSF Circular 18/698
Liquidity risk	CSSF 19/733; CSSF 20/752 (LST)	AIFMD Art. 16; CSSF 18/698
Counterparty / credit risk	UCITS Directive; ESMA guidelines	AIFMD; CSSF RMP document
Operational risk	UCITS Directive; DORA (ICT)	AIFMD; DORA (ICT)
Leverage measurement	Commitment approach / VaR	Gross method + commitment method