In April this column wrote about doubts over the accuracy of the valuations of some super fund investments, and so members accounts. Back then the Australian Prudential Regulatory Authority (APRA) had concerns that some funds may be overvaluing their unlisted assets to enhance performance.
Now the oversight body that assesses the performance of APRA says it isn’t doing enough to force super funds to value their unlisted assets correctly. The Financial Regulator Assessment Authority reviews APRA’s performance every few years.
Its recent report says super funds that have built up large portfolios of illiquid, unlisted assets are putting Australians’ retirement savings at risk. The Australian Financial Review (AFR) has published several articles on the issue recently.
The funds with the most unlisted assets are all industry funds. According to the AFR HostPlus has 51 per cent unlisted assets, Australian Retirement Trust 31 per cent, Aware Super 28.3, Australian Super 28.1, REST 27.4, HESTA 23.5 and UniSuper 16.8 per cent.
Unlisted investments are not listed or traded on any market, so have no easily quantifiable value. Interest bearing securities are traded in fixed interest markets. Shares are traded on share markets. Some commercial property units are traded on share markets.
Currencies and precious metals are traded on relevant markets. Prices are negotiated between real buyers and sellers, so are totally transparent.
Unlisted assets include infrastructure like toll roads, pipelines and airports, shares in private companies including new start-ups, and directly owned commercial buildings.
Fund managers, super fund executives or professional valuers decide on the assets’ values. A high valuation helps the super fund’s performance. The accuracy is uncertain but nor can it be easily proven wrong.
Financial regulators are concerned that retiring members can exit at inflated prices and young members are being charged too much on their contributions.
Stock market listed property like Stockland and Westfield have fallen about 20 per cent since January 2022. Super funds have not written down the values of their directly owned properties by anywhere near that much. CBUS Super cut the values of some of its properties by 10 per cent at June 30.
Actual sales of commercial properties have been at greater discounts. Some commercial property funds have recently received a rush of withdrawal requests and restricted withdrawals. HostPlus has closed its property and infrastructure member choice options.
Let’s hope all funds move to fair market valuations quickly.