Major consultancy, KPMG is recommending at least quarterly valuation cycles for unlisted assets.
In a white paper specifically looking at the environment which has been generated by COVID-19, particularly since March, the consultancy has urged asset owners to take a studied approach, rather than applying “an ad-hoc adjustment to equity returns to address potential value impacts”.
“We firmly believe any adjustment to value should be assessed on an individual investment basis, having regard to a number of factors,” it said.
The KPMG white paper has been published at the same time as a number of major funds including AustralianSuper and UniSuper have acknowledged undertaking downward revaluations of their unlisted assets.
It also comes amid confirmation by major fund managers such as Challenger that client superannuation funds have been rebalancing their portfolios in pursuit of liquidity.
Discussing the white paper, the head of KPMG’s Valuations Practice, Sean Collins said many investors were trying to finalise the carrying values of their investments during a period of unprecedented economic shock.
“Time is limited to assess the impact of this uncertainty on cash flows and the inherent risks of the investment companies over the short to medium term. We firmly believe any adjustments must be made on an individual investment basis, having regard to various factors, both Covid19-related and others,” he said.
“Valuations are typically given as a range, and we consider the risk is currently skewed to the downside,” Collins said. “In the current circumstances, we would encourage investors to consider the entire range when selecting an appropriate point estimate of value and consider the increased risk aversion of market participants as evidenced by recent financial market performance.”
“We would also recommend that those investors who do not undertake regular valuation cycles adopt a more frequent valuation cycle during this period, and all investors initiate the reforecasting and valuation