Background & Context: The CSSF Findings in Focus
Luxembourg’s financial regulator, the CSSF, recently concluded an on-site inspection that uncovered serious compliance failures at a fund. The CSSF imposed a sanction and a fine citing multiple breaches of the Alternative Investment Fund Managers (AIFM) rules. Chief among these was a glaring shortcoming in safekeeping duties for “other assets” – essentially, illiquid assets like private equity holdings. Specifically, the sanctioned entity’s ownership verification process did not meet AIFM’s look-through requirements — it couldn’t show an up-to-date inventory of fund-owned assets.
In some cases, basic ownership documents were missing or unreliable, and the depositary had not even reviewed the AIFM’s own procedures for registering assets and reconciling records.
These findings did not stop at safekeeping of private assets. The CSSF also flagged deficiencies in oversight duties, compliance, and valuation policies. Weaknesses in internal controls were noted as well, painting a picture of systemic operational lapses. In short, the CSSF’s review exposed a broad failure to comply with AIFM regulations – a clear warning sign for the industry.
Implications for Private Equity Funds
For private equity fund managers, these findings hit close to home. If a fund cannot verify asset ownership or keep accurate records, it suggests that the fund’s data and processes are disorganized. In today’s difficult fundraising market, such compliance failures carry steep consequences. Limited Partners (LPs) are more cautious and demanding, scrutinising managers’ operations during due diligence. Any hint of weak safekeeping or oversight can become a red flag. According to an industry survey, LPs remain committed to private equity only as long as GPs prioritize transparency and act in the best interest of LPs. Failing to maintain transparent, robust operations undermines investor trust.
Moreover, regulatory scrutiny is intensifying across jurisdictions. The CSSF’s enforcement is a reminder that regulators expect private equity funds and their service providers to tighten up controls. We can anticipate depositaries will demand more timely data and cooperation from fund managers to fulfill ex-ante verification duties (as the CSSF now insists).
Private equity CFOs, COOs, and middle-office teams will be on the hook to furnish accurate information fast. In practical terms, if your fund’s investment structures, ownership records, capital structure details, or transaction documents are scattered, you will struggle to satisfy both regulators and investors. The risk is not just regulatory sanctions; it’s also and indicator of weak valuation standards, audit controls, and transaction readiness of portfolio investments.
What are the challenges for Private Equity Funds
Private Equity Funds, particularly in Europe, face a high degree of complexity in verifying ownership position when investments are held in multiple jurisdictions through unique holding structures. There is a high degree of reliance on third-party records, such as corporate registries or legal agreements. A lack of standardisation in processes and data structure makes verifying private equity investments cumbersome.
Regulators like the CSSF require the Fund go beyond the direct ownership level and trace the underlying assets through the holding structures when determining whether the AIF has ownership rights. This is particularly relevant when:
- The Fund invests through special purpose vehicles (SPVs), holding companies, or intermediary entities.
- The assets are indirectly held through subsidiaries or layered structures.
- Ownership rights are tied to partnership agreements, shareholder registers, or contractual arrangements.
In these cases, the Fund must:
- Identify and document the ultimate assets owned by the Fund, rather than just the SPV or intermediary.
- Verify ownership by checking legal documents, share registers, or contracts.
- Ensure accurate record-keeping, so the Fund’s interest in the ultimate asset is properly reflected.
Why Is This Important?
Investment and ownership structure data drives many key workflows and data needs:
- Valuations – Without accurate ownership records, Funds cannot accurately value the equity held in their investments (Waterfall Valuation models need ownership data).
- Investor Protection – Ensures transparency in ownership structures, reducing fraud or misappropriation risks.
- Transaction Readiness – Investment Structure data drives the vast amount of tax and legal due diligence requirements and transaction documentation needs during exits.
- Regulatory Compliance – Helps depositaries meet their obligations under the AIFMD.
- Risk Mitigation – Identifies complex structures that may hide liabilities or risks.
Why the Current Approach is Unsustainable
Many private equity funds still manage complex investment structures using Excel spreadsheets, email trails, and siloed data repositories. This status quo may have been passable in the past, but it is quickly becoming untenable under modern demands. Key pain points include:
- Fragmented Data & Excel Overload – leading to errors and compliance risks: Relying on disconnected spreadsheets introduces frequent errors and inconsistencies. Manual data entry and complex formulas are error-prone, often resulting in financial discrepancies or missing information. These inaccuracies inevitably trigger compliance issues when reporting to regulators or LPs. It’s easy to see how the CSSF’s cited lapses – like unreliable ownership positions on a look through basis in complex multi-level investment structures – can arise in an Excel-based process. Without a single source of truth, teams may be unaware of discrepancies until an issue explodes under audit scrutiny.
- Manual, Labor-Intensive Processes – creating bottlenecks and operational risk: When fund operations depend on people pushing data around manually (copy-pasting between files, chasing signatures and confirmations), it devours time and resources. Quarter-end reporting or investor requests become fire drills as teams scramble to aggregate data from various advisors and administrators. These time-consuming workflows are not just inefficient; they are risky. A critical step easily gets missed amid email overload, or a version-control mistake goes unnoticed. Such bottlenecks were highlighted in the CSSF findings (e.g. missed reconciliations and checks). In short, a process that works only because key staff put in heroic efforts each time is neither scalable nor sustainable.
- Lack of a Holistic, Real-Time View – hurting reporting and due diligence: Perhaps the biggest handicap of the current approach is the absence of one up-to-date view of the fund’s assets and structures. Data lives in silos (law firms’ files, admin spreadsheets, local folders), so obtaining a complete picture is painfully slow. Managers cannot confidently answer a regulator’s or investor’s question like “exactly what does our ownership structure look like across all SPVs right now?” without days of reconciliation. This makes accurate reporting a challenge and slows down due diligence processes. Our experience of having reviewed and transformed current operations for PE funds shows, without a live, central record of your holdings, you’re effectively operating with “no oversight” – you’re blind to how all the pieces fit together. In practice, that means potential issues stay hidden until a major event (like an exit or audit) forces them into the open, often at great cost.
In summary, continuing with ad-hoc spreadsheets and fragmented workflows is a recipe for operational distress. The CSSF’s report is a stark illustration that the old ways can and will fail under the weight of regulatory complexity and investor expectations. Private equity operations have reached a breaking point where manual methods simply can’t keep up with the scale and scrutiny of today’s market.
Technology as the Solution – The DealsPlus Advantage
If current methods are unsustainable, what’s the path forward? The answer for private equity firms is to embrace technology to transform fund operations. A technology-driven approach can ensure compliance, drive efficiency, and provide the scalability that manual processes lack. By adopting DealsPlus, fund managers can regain control and transparency over their data, turning operational management from a weak link into a competitive strength.
Centralise and Digitise – The first benefit of DealsPlus is a single, digital source of truth for all investment structure information. Instead of investment and ownership structure details spread across spreadsheets and scattered documents, everything is managed in one secure platform. This centralisation means all stakeholders are working off the same real-time data – no more guesswork about which spreadsheet is the latest or whether an SPV’s records are updated. Complex ownership structures are digitized and visualized, so both regulators and auditors can easily verify asset ownership and perform the required checks. Compliance becomes much easier when the system can automatically maintain an up-to-date inventory of assets and ownership records, aligned with what regulators, auditors, and investors expect.
Automation and Efficiency – With software, many routine processes can be automated or streamlined. DealsPlus, for example, uses intelligent workflows to update equity valuations, track changes in ownership positions, and alert teams to required actions. This automation eliminates manual bottlenecks and greatly reduces the risk of human error. Both front and middle-office staff can free up countless hours previously spent on data reconciliation or repetitive reporting tasks. In fact, DealsPlus removes manual work from many workflows completely.
For a Fund Finance, this means the quarterly reporting cycles, annual fund audits, regulatory reporting to bodies like CSSF or the FCA, or portfolio exits – all of which used to be a mad dash can instead be a more routine, orderly process – the data is already there and updated in real time. The platform can directly power all these key workflows, pulling from verified data. When the CSSF (or the SEC, FCA, or an LP) comes knocking with an information request, a digital system ensures you can respond quickly and accurately, rather than launching a weeks-long data hunt.
Holistic View and Transparency – A key advantage of DealsPlus is 360° visibility into the fund investment structures. You gain a dashboard of all investments, entities, and transactions in the portfolio. This kind of bird’s-eye view is exactly what’s needed to proactively manage compliance and enable rapid decision-making. For instance, if a certain portfolio company issues new shares or debt, the central platform captures it, and every downstream impact (ownership percentage, voting rights, waterfall valuations, etc.) is updated across the board. Both the fund manager, portfolio management, external advisors, and auditors see the same information, facilitating the ex-ante oversight the regulators now insists upon.
Importantly, this transparency extends to portfolio exits: you can confidently share data and reports, knowing they are backed by a single source of truth rather than a patchwork of spreadsheets. The result is faster due diligence, cleaner exits, and enhanced trust.
As one Head of Finance at a global PE fund noted after implementing DealsPlus, “We’ve got 50 different investments across the world. With DealsPlus, we now know all those structures are always correct, up to date, and maintained.”
This level of confidence is invaluable when facing investor questions or preparing for an exit – nothing is left to folklore or fragmented files; everything is documented and readily accessible.
Scalability and Future-Readiness – Perhaps most critically, technology makes your operations scalable and future-proof. Private equity firms grow in complexity – launching new funds, entering new jurisdictions, managing more portfolio companies – and a manual approach simply does not scale in proportion. A platform like DealsPlus allows you to handle a larger scope of assets and activities without a commensurate explosion in risk. It embeds consistent processes and controls that work whether you have 10 investments or 100.
Case Study: How a pan-European Fund transformed its operations
This scalability was illustrated in a recent case where a global PE fund with a Luxembourg AIFM, holding 80+ investments, overhauled its operations with DealsPlus. By digitising all investment holding structures and consolidating data for finance, valuation, legal, and compliance teams, the fund significantly cut down its quarterly reporting time and improved accuracy.
Regulatory compliance checks that were once done ad hoc are now systematized – for example, depositary reconciliation and audit trails are built into the platform, greatly simplifying annual audits and depositary reviews. When the time came for an exit from one of its portfolio companies, the fund was “transaction-ready” with current cap tables and asset histories readily available. The buy-side due diligence was smooth and swift, a direct result of having a robust digital infrastructure.
In essence, technology has enabled this firm to operate with the agility of a nimble firm but the controls of an institution, turning operational excellence into a selling point for both internally and externally.
Conclusion
The message from the CSSF’s recent findings is loud and clear: status quo operations won’t cut it anymore. The cost of operational complacency is growing – in regulatory risk, in investor confidence, and in sheer inefficiency. For private equity leaders (whether in the C-suite or managing the middle office), now is the time to rethink and reinvent how your fund handles safekeeping, compliance, and reporting. This is not just a compliance exercise, but a strategic one. An investment in modernizing your operational infrastructure will pay dividends in smoother fundraises, easier audits, and ultimately better returns, as your team can focus on value-adding activities rather than clerical firefighting.
In an industry built on finding alpha and navigating complexity, it’s ironic to let outdated processes be the weak link. By embracing digital solutions like DealsPlus, private equity funds can turn operational excellence into a source of strength. The technology is here – with the ability to provide real-time transparency, eliminate inefficiencies, and ensure every compliance box is ticked behind the scenes. It’s up to forward-thinking fund managers to seize this opportunity. Don’t wait for the next regulator fine or a failed LP due diligence to prompt action. Proactively future-proof your fund operations now.