Covid-19 – Questions for Investment Fund Directors and Managers
by Monique Bachner
This article stems from the web “Coffee Chat” organised by ILA, the Luxembourg Institute of Directors – an online podcast discussion focussed on corporate governance issues.   For the first editions, Covid-19 will clearly be a recurring theme. 
This first Chat was held on 2 April 2020, and hosted Monique Bachner, ILA Board member and a governance professional involved in various Boards.
Monique was joined by Keith Burman, Joachim Kuske and Yann Power.   Joachim is a member of ILA’s legal and regulatory committee, and previously worked as a lawyer in Luxembourg and is now an independent non-executive director.  Yann is co-chair of the ILA Alternatives Taskforce, and a regulatory expert with ME Business Solutions and in governance regulated entities. Keith is a member of the ILA Alternatives Taskforce, and an independent non-executive director for a number of cross-border real estate, private debt and infrastructure funds

Covid-19 – Questions for Investment Fund Directors and Managers 

The roles and focus of a Fund or IFM Board during this crisis will depend a lot on the overall investment strategies, organisation and scale of their vehicles.  

Ensuring business continuity and regulatory compliance 

Boards should be aware of the wide variety of issues stemming from the current Covid-19 crisis – ensuring they are aware which measures have been put in place and what needs to be communicated to investors and regulators.  


The CSSF has issued several press releases, as well as a “FAQ Covid-19” which summarizes the various questions raised by regulated entities such as Investment Funds and IFM, and which they continue to update.

The ILA Alternatives Taskforce has also issued a guide “Topics for Boards of Investment Fund Managers and Investment Funds to consider during the Coronavirus (Covid-19) disruption” tracking the main issues and regulatory actions, which will also be “live” and updated as guidance changes, and available at

Boards should ask how Management is responding

Boards should take reasonable steps to check their business continuity and regulatory compliance continue to be addressed in a secure and sensible manner.

Boards should take interest in how the day-to-day management has been affected by Covid-19, and how they are managing the response, as well as heightening monitoring of the company’s financials.  

For IFMs, adequacy of regulatory “own funds” may need to be monitored more frequently than usual, and company law provisions requiring a shareholder vote at certain thresholds of falls in share capital should also be considered.  

Fund Investment Strategies 

When looking at investment strategies of the Funds, liquid strategies are most in need of immediate attention due to investor redemptions and large market volatility. 

Boards should check whether the Funds are – and can continue to - carry out their strategy as defined in the prospectus.  Boards will need to consider how to ensure the best interests of their investors for the longer-term, whilst remaining compliant with prospectuses and regulations.  Passive breaches as investment limits and targets are affected by market volatility and ratings downgrades are virtually assured.  

Liquidity Risk Management Measures 

Liquidity management is a big issue for open-ended funds and semi-open-ended funds.  Two key aspects stand out: investor redemptions and fund risk management generally.  

Investor redemptions

Boards should receive updates on liquidity measures in place in order to evaluate them (and if required, implement them).  If suffering a liquidity event, such as a NAV suspension, the CSSF and other service providers will need to be notified.

Business plans need to be reviewed in light of the crisis, and plan for future liquidity.  Declaring discretionary dividends should be questioned until markets and economic outlook become more certain.  

Valuations and NAV

Given the market volatility and valuation and pricing uncertainty of portfolio investments, discussions about NAVs have become difficult.  Can a NAV can be fairly arrived for all investors right now with price volatility or fewer transactions making required valuation data points challenging. If pricing is uncertain or unreliable, should Boards consider suspension?  Consider also whether it may be appropriate to insert material uncertainty clauses regarding portfolio valuations, referring to unreliability given the market volatility.  

The Covid-19 crisis is stress testing fund liquidity models.  Don’t be complacent - even if the Fund currently seems fine, redemption requests may come at any time, especially as investors priorities and own liquidity change.   

Communications and Reporting with Stakeholders

Annual Accounts and AGMs

Annual accounts and Shareholder meetings can currently be postponed, and shareholder meetings may be held in different formats or completely by proxies. 

Year-end accounts now must contain notes regarding Covid-19. 

Challenging discussions are already taking place with auditors on valuations and going concern aspects, which Boards must take an active part in. Going-concern discussions have historically been quick discussions, however, more thought about possibilities for the next 12 months is currently required.  Boards need to think about this when signing off on the accounts.   

Video-conference options were already possible for many entities, and now possible for all as a result of the GDR.  If holding a remote shareholders’ meeting, make sure to refer specifically to the GDR and mention the Covid-19 crisis in any convening notices to shareholders.   

Communicating with Investors and other stakeholders

Issuers of funds should consider whether, and to what extent, they should communicate with investors – whether for formal disclosures or for ad hoc general updates such as email letters to investors or published on websites.  Other types of communications may also include updates to offering documents, subscription documents, including risk warnings related to the crisis.  

Don’t forget basic principles of equal access to information for all investors and shareholders, and if the entity or certain share classes are listed, the market abuse regulation still applies.   

Communicating with Regulators 

In addition to usual regulatory reporting, IFM and Funds must be able to respond to ad hoc requests from regulators.  Luxembourg IFM have been reaching out proactively to the CSSF and other regulators.  

The CSSF is willing to accept extensions of certain reporting deadlines, where justified.  Whilst not recommended, it is helpful to know it is there an option.  

Communicating with other stakeholders

Given the delegation model of the Fund industry, Boards should ensure their IFMs are reaching out to key service providers to ask about their current operations - how they operating, whether particular issues have arisen.  Boards should not be doing the role of the IFM, but should check with the IFM’s how they are following up on such items, and support where needed. 

Employees Working from Home (WFH) and its new challenges

The CSSF reacted quickly to Covid-19 to encourage people to WFH.  All regulated entities will have had back-up sites as part of their business continuity plans (BCP), but most likely hadn’t contemplated a 100% remote workforce and the different challenges that has brought.  

IT and security

Nothing fundamental has changed with regard to security or due diligence.  To avoid unnecessary risks and regulatory breach, usual diligence should be applied with any changes to providers or practices should be assessed prior to deployment – for example storage clouds should be analysis against items such as security, their terms and conditions.  Boards need to be diligent, and should also ask questions to their service providers.

The CSSF has issued several circulars specific to IT and to cloud computing, which regulated entities should be familiar with and apply.  Data is also now in homes which brings new challenges – if employees are printing, are they also shredding documents securely?  Who else is around to see confidential information on screens?   More than ever, Directors also should think about their circumstances about receiving/storing documents, including encryption where required, as they will often not be on company-issued devices.  

IT and security - Data Protection and the GDPR

GDPR rules still apply when dealing with personal data, with any derogation needing to be justified, with extra care to be taken regarding compliance of data transfers outside the EEA.  

Cross-Border Tax Questions for employees WFH

There are limits imposed by other countries on the number of days an employee can work from home outside of Luxembourg, without being subject to taxation of their activity also in that other country.  Agreement has been reached with the neighbouring countries to suspend these limits during the lockdown periods. 

Board Continuity 

Board quorum and voting

Composition, size and other factors will affect how Boards can continue to function in their current circumstances.  There is no general answer.  Larger Boards are more likely to reach a quorum where one member is sick than those operating at the legal minima.  

For Board meetings and written resolutions, refer to the Covid-19 crisis and to the new Grand-Ducal Regulation of 20 March 2002 (GDR) in both convening notices and the minutes.  

If needing proof of attendance or location at time of the call, ask and note where each Director is dialling from, or even a screen shot of the attendee list (whilst remaining mindful of GDPR implications and consents).  

Depending on particular challenges, Boards could potentially set up specific sub-committees, maybe even composed jointly of a combination of board members, senior management, and if required, special advisers.

Taxation issues for Boards and Board meetings 

It is not clear to what extent the foreign tax offices will treat these regarding questions around the central management of an entity.  For example, tax rules have not expressly been waived in UK and other partner countries, although it is believed that a certain tolerance will be applied in particular during the periods of their own lockdowns.  Discuss with your tax advisors.  

On a corporate governance level, it is never ideal to exclude any Director from a Board discussion and we strongly encourage diversity – skillsets, geographic, and more – as it enhances the quality of discussion and decision-making.  However where is a perceived risk such an overseas Director may need to issue a proxy to a fellow Director and not participate.  

Whilst most people believe there will be more leniency due to the current crisis and lockdowns, nothing can be guaranteed.  Make sure to note in the meeting minutes that the Board meeting was held via telephone as a temporary measure in light of Covid-19. Check with your relevant lawyers and advisors for all corporate tax and VAT implications.  

Signing of Documents

The EU’s e-IDAS for legally binding e-signing already exists (with the exception of certain documents, such as those requiring a notary), with various providers available to choose from.  Boards should embrace the opportunity to fully digitalise and adopt e-signature and e-archiving practices. 

Programmes allow for Boards to differentiate categories of documents which can be signed electronically, or how many signatures are required. 

Contractual Obligations and force majeure

It is not always clear whether Covid-19 may constitute a force majeure event under a particular contract.  Given the international context, first the check what governing law applies to a particular contract, as well as whether there are specific force majeure definitions or provisions in the contract.  In Luxembourg, many situations would appear to fall outside the qualifications of force majeure under the Luxembourg Civil Code.  For example, demonstrating absolute impossibility for a counterparty to meet the contractual obligations.   

Be proactive with your contractual parties - especially if you have covenants to meet.  Seek legal advice if needed.

Further resources

• ILA Documents for Investment Fund Directors and Managers:

By Monique Bachner, ILA Board member and a governance professional involved in various Boards.

It has been 2 years since the COVID -19 crises hit
Check out the events and resources our Working Committees prepared during this period!