Australia’s pensions regulator will conduct a “deep dive review” of funds’ exposures to unlisted assets in the A$3.6 trillion ($2.4 trillion) superannuation industry this year, it announced Wednesday.
Combining its policy and supervision priorities for the first time to give regulated entities a better idea of what to expect in the year ahead, the Australian Prudential Regulation Authority stated it is focused on “protecting the safety and resilience of regulated entities, promoting confidence and stability in the financial system, and supporting the community to achieve good financial outcomes.”
As part of this effort, the APRA pinpointed asset valuation and liquidity management practices in announcing it expects investment governance processes to be sound. According to the regulator, it will conduct its own review of such practices, looking at the material unlisted asset exposures of a variety of large and mid-sized funds.
This review follows the APRA’s introduction of the requirement for funds to revalue their unlisted assets on at least a quarterly basis. This occurred around the same time the Financial Regulator Assessment Authority criticized funds’ approach to valuing unlisted assets in the wake of fall 2022 Canva Pty Ltd. write-downs, as well as the APRA’s oversight of the issue.
The review is expected to cover investments in commercial property, private equity and credit, as well as the likely liquidity risks associated.
Alex Dunnin, executive director of research at the Sydney-based Rainmaker Group, says the review “is entirely reasonable but should not be overstated.” Rainmaker Group, like CIO, is owned by ISS STOXX.
APRA data show its regulated super funds have just 16.4% of assets—less than A$400 billion—in unlisted assets. Of those assets, unlisted property accounts for just 29%, unlisted infrastructure 41% and unlisted equity accounts the remaining 30%.
“While the regulator has reviewed valuation practices for unlisted assets recently and found no red flags, what may have stirred renewed concern is investment industry surveys revealing fund investment chiefs to be claiming devaluations in unlisted office property are overstated and that they expect minimal further falls,” Dunnin says.
“These survey results seem out of step with market reality, and APRA is right to explore what’s going on, given office property is about half the unlisted property sector,” he says. “But given how so many market observers seem to not understand how the unlisted assets market actually works, how and through what structures these assets are held, and how valuations actually occur, by whom and how often, anything APRA could do in their deep dive to educate the broad market about these dimensions would be very useful.”
The update on priorities comes as Australia’s total retirement savings pot marches steadily towards A$4 trillion.
Statistics released by the APRA Wednesday show total super assets hit A$3.57 trillion last financial year, close to A$1 trillion of which is in low-fee default MySuper products.
Total contributions into MySuper products in the year through June 30, 2023 were A$134 billion, while A$76 billion was paid out in benefits. The average account balance in a MySuper product is just shy of A$64,000, while the average balance overall is A$111,380.
This article initially appeared in our sister publication, Financial Standard.
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Tags: Australia, Australian Prudential Regulation Authority, commercial real estate, Infrastructure, Private Equity, Superannuation Funds, unlisted assets, valuation