Australian regulatory scrutiny of unlisted assets reflects global trend
The valuation of unlisted assets is increasingly coming under the microscope as pension funds confront regulatory changes in the wake of the Covid-19 pandemic.
The Australian Prudential Regulation Authority (APRA) has taken a leading role in this global shift, with its comprehensive review setting a benchmark that resonates with financial regulators worldwide, shining a light on superannuation funds like Aware Super.
"The review into the valuation of unlisted assets was necessitated by the unique challenges presented by the COVID-19 pandemic, which included significant market volatility and a heightened need for fund liquidity," an APRA spokesperson told AsianInvestor.
ALSO READ: Australian super funds step up scrutiny of unlisted assets
APRA
Overwhelmingly, these reviews illustrate that robust frameworks, clear accountability, and holistic approaches to business planning are essential ingredients in running what are — in most cases — multi-billion-dollar businesses with enormous fiduciary responsibilities, according to Magaret Cole, deputy chair at APRA.
“We expect all trustees to review their operations in light of these findings with a view to identifying any sub-standard practices and improving processes and procedures,” Cole said.
GLOBAL FOCUS
As Australia’s A$3.6-trillion ($2.4 trillion) superannuation industry navigates through these regulatory changes, we can expect to see a ripple effect, according to Andrew Boal, a partner at Deloitte Australia.
“Other regulators and pension funds across different jurisdictions are likely to follow suit, adopting similar measures to ensure that their valuation practices are just as rigorous and transparent," Boal told AsianInvestor.
From the US to Europe, pension funds have been diversifying their portfolios with unlisted assets, including infrastructure, property, and private equity.
This trend has led to a reduction in market visibility and, consequently, a call for more rigorous valuation and disclosure practices.
Deloitte
"The superannuation industry's approach to valuing unlisted assets is being watched globally. The methods we refine and the standards we set could very well inform international best practices," Boal said.
The way the world has changed since Covid-19 has only amplified the scrutiny on valuation practices, and there is now a significant comparison between the transparency of listed and unlisted valuations, he said.
Around the world, regulators are aligning to address the complex issue of unlisted asset valuation, with a clear message: transparency and accuracy are paramount.
ALSO READ: Super funds struggling to comply with new rules on unlisted assets
"What we're observing is a pivotal shift in how pension funds approach the valuation of their unlisted assets. Other nations are looking towards Australia's example and considering how these principles can be applied within their own regulatory frameworks," said Boal.
Last October, the UK's Financial Conduct Authority announced its own review of private asset valuations over concerns of inflated valuations.
The FCA's scrutiny comes in response to fears that the rapid growth of private assets, now valued at $11.7 trillion, could impact broader markets if misvalued.
The concerns of APRA and the FCA are also being reflected in a broader global movement where regulators, including those in the EU, Canada, and the Netherlands, are also tightening valuation standards for unlisted assets in order to foster financial stability.
WELCOMED SCRUTINY
Within the Australian superannuation landscape, the scrutiny of the incoming regulation will fall on the larger funds who take on the task of investing and valuing these assets themselves.
ALSO READ: UniSuper discusses unlisted asset valuation as regulatory scrutiny rises
Aware Super, Australia’s third largest super fund with A$150 billion in assets, is largely in favour of APRA's actions and is taking a constructive approach to meeting the regulator’s requirements.
“With the retirement resilience of our members at stake, we are passionate advocates of any measures which will protect their interests, including ensuring the proactive, transparent, and regular fair-valuation processes regarding assets we invest in on their behalf,” an Aware Super spokesperson told AsianInvestor.
The fund ensures a regular valuation schedule to accurately reflect the current values of assets in its portfolios.
“All valuations are updated frequently to reflect the current state of the asset as well as prevailing market conditions," the spokesperson said.
The fund also holds regular constructive meetings with APRA and remains supportive of the regulator’s actions in the space.
“We’re a long-term investor with a highly diversified portfolio built to accommodate economic cycles and market volatility, ensuring appropriate liquidity levels. Our investment approach aligns with regulatory expectations around asset valuation and liquidity management.”