Margaret Cole. Photo: Jack Smith

APRA has told smaller super funds (under $25 billion) and platform RSE licensees (RSELs) to address the weaknesses in their unlisted asset valuation processes, following an industry self-assessment survey that identified some deficiencies around the use of revaluation triggers, frequency and board oversight.  

The survey, as outlined by APRA in its regulatory priorities at the beginning of 2024, covered 45 RSELs and close to 100 per cent of regulated entities’ exposure to unlisted assets. 

While some areas have seen better practices – including super funds having more checks and controls around whether investment managers’ and independent valuers’ valuations are reasonable, and elevating valuations’ importance in internal audit plans – several other problems persist.  

APRA deputy chair Margaret Cole said the area with most room for improvement is funds’ use of revaluation triggers, because several RSE licensees don’t have them or don’t have a clear definition of them, which could pose investment governance challenges.  

For those funds that do have predefined triggers, the top factors that will cause more frequent ongoing revaluations are “increased market volatility or stress”, “significant change in the outlook for an asset or its operating conditions”, and “global or market specific crises”. 

Notably, 13 funds referenced “significant member switching activity” as a trigger.  

These factors are also likely to cause occasional out-of-cycle valuations, alongside other reasons like more frequent reporting to boards or management.  

In terms of specific asset classes, real estate heads in super funds have previously defended their “robust” valuation processes which they said are “leading” among all unlisted assets. 

And property valuation is indeed one of the most heavily scrutinised issues by boards alongside private equity, according to the APRA survey. 

The regulator also said it wants to see boards applying more of a critical lens in valuations provided by management and external parties.

Source: APRA


The survey found that 38 boards haven’t challenged, rejected or overridden any valuations provided by management since July 2022, and 28 haven’t done so to valuations provided by external parties.

“This was particularly prevalent with the platform trustees,” Cole added, as 11 out of 13 platform responses indicated no challenge of valuations from either source.

Bigger funds and asset consultants have previously urged the whole industry to get on board with building well-governed valuation processes, because individual bad practices can still send a wrong message from the sector.

“If you see an article in the paper [about bad practices], you might well think: ‘Well, it doesn’t affect me, it was someone else’,” Paul Newfield, Frontier Advisors director of sector research, told the Investment Magazine Fiduciary Investors Symposium last year.

“I think it affects everyone because that undermines the confidence of the public and increases the pressure on the regulators and the politicians to look at funds and say: ‘What are you doing to address the issues at hand?’”

Following the survey, Cole said APRA will continue to engage “where weaknesses have been identified” and around “thematic work relating to unlisted asset valuation governance practices”.

The regulator is still expected to conduct a cross-sectional review with large to mid-sized funds with “material unlisted asset exposures” later this year.

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