AIST welcomes more nuanced discussion on unlisted assets

The Australian Institute of Superannuation Trustees (AIST) has welcomed further discussions around unlisted asset investments and called for greater clarity on APRA’s expectations in relation to independent valuations.

According to David Haynes, AIST senior policy manager, such investments, which range from private equity and infrastructure to property investments, offer “strong and consistent returns” for profit-to-member funds who have historically invested in such assets. 

Criticisms around insufficient scrutiny in the initial valuation process and speed of the re-evaluation process, following market events, are not necessarily valid, he added.  

“These criticisms have been around for a long time, but the rigorous and robust approach of profit-to-member funds and the experience of strong sustainable returns over 30 plus years over many market cycles shows them to be a myth,” Haynes said.

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“Where there is a significant market downturn, this triggers out-of-cycle valuations to ensure values are accurate and up to date.”

He acknowledges that a one-size-fits-all approach to revaluation is not feasible given the different asset classes under unlisted investments and calls for further APRA guidance, which he hopes to see included in SPG 530 slated for late July 2023.

“It may be that one approach is to have triggers which are specific to each of the unlisted asset classes,” Haynes suggested.

“Typically, trustees of super funds approve a governance framework for valuations that includes regular external audits of valuations, detailed due diligence reviews, ongoing engagement with investment managers, and oversight of their operations.

“Discussions about valuation processes are entirely valid. But it should not be used as a reason to not invest in unlisted assets.”

Previously, the AIST has specified that the requirements for stress testing of asset valuation practices should have regard to the roles and responsibilities for investment monitoring, liquidity, risk valuation, and governance.

It would mean RSE licensees should determine the governance process that best and most effectively meets their needs, such as integrating governance frameworks and allowing board committees, investment professionals, or senior management to oversee and manage valuation processes. 

“The investment professionals and executives need to apply expert judgement to ensure that key questions of policies, procedures, and facts in relation to assets are identified and brought to the board for their attention in structured in a way to assist with meaningful decision making. Exactly what that means will depend on the size of the fund, the size of the asset, and the issues associated with the asset class,” Haynes explained.

“The challenge isn’t so much about investment professionals and boards coming to the right view. It is making sure that those processes, procedures, methodologies are all properly articulated, documented, reviewed, assessed, and changed as necessary.”

JP Morgan’s 2023 Future of Superannuation report, which collated data from six superannuation fund leaders in Australia and the UK, also found growing funds are moving offshore but not limiting themselves to listed markets.

It expected unlisted assets to play an ongoing key role in super fund portfolios and future investment strategies as their appetite for private market assets rises.