Around 11 per cent of HESTA membership – or 121,000 individuals – will experience adjustments in the number of investment option units they hold in the coming weeks, as the healthcare industry super fund looks to rectify a price discrepancy caused by its revaluation decisions during the pandemic, which were questioned by APRA.  

The prudential regulator said during March 2020, HESTA decreased the unit value of five single-sector Choice investment options with exposure to unlisted assets, but did not adjust other options with the same underlying assets (including the fund’s MySuper option) until a week later. 

APRA said it was “concerned” that the $89 billion fund was “unfair” to members who switched from single sector options to other unadjusted options during the one week. It started engaging with HESTA in January 2024.  

“In one instance, a member who switched investments from the adjusted Choice options to the unadjusted MySuper option during the week in question was approximately $17,000 worse off,” APRA said in a statement to the press on Tuesday.  

The regulator said it was also worried that HESTA’s out-of-cycle valuation practices were not robust enough considering the market volatility in March 2020.  

A HESTA spokesperson said the median unit value of adjustment will be $17 rounded to the nearest dollar. The fund said it will consider both differences in the value of units at the time and earnings that would have subsequently occurred in its compensation.  

Current members will receive the adjustments in their accounts, and exited members will receive the equivalent dollar amount via the ATO, the spokesperson said. The collective value of the adjustments is yet unclear.  

The spokesperson said HESTA did not breach any law.  

Room for improvement 

Another question around HESTA’s case is that it is not immediately clear why the fund’s system and tools have not ensured the latest asset values are applied across all investment options. The HESTA spokesperson declined to comment on the question.  

A consultant advising super funds, who did not wish to be identified, said there is still significant room for uplifts within funds’ valuation practices. While not addressing HESTA’s situation specifically, the expert said a common problem is that the current process is “too manual”.  

Some funds are still working the numbers off from spreadsheets, the source said, and superannuation has a long way to go before reaching the level of valuation maturity such as in banking. 

Valuation governance has been among APRA’s top enforcement priorities, and the regulator said out-of-cycle revaluation is a key area for improvement based on the results of an RSE self-assessment survey earlier this year.  

APRA said funds need to have a better idea of their revaluation triggers, as the survey suggested several RSE licensees didn’t have them or didn’t have a clear definition of them. Earlier this year at the Investment Magazine Chair Forum, APRA deputy chair Margaret Cole said funds will be held accountable to identify when it’s the right time for a revalutions.

The regulatory focus responds to super funds’ increasing exposure to private assets. At a joint roundtable hosted with APRA earlier this year, ASIC reminded top super fund CEOs to be mindful about their conduct in private markets and provide transparency to members. Funds need to be prudent about valuation and be in control of external fund managers’ practices, the market watchdog said.  

APRA will not take further action on the HESTA case.