Trustees warned on unlisted assets

The chairman of the Australian Prudential Regulation Authority (APRA), John Laker, has urged superannuation fund trustees to ensure their funds are appropriately valuing unlisted assets and then reflecting those valuations in their results.

Laker used a speech in Sydney last week to state that while it was not APRA’s role to prescribe specific valuation methodologies, the regulator had been emphasising to trustees that they have a responsibility to ensure reliable valuations of assets and to take the difficulties and costs of valuing unlisted assets into account when determining investment strategies and menu choices.

He said APRA had also pointed out to trustees the need to give due consideration to the equity aspects of valuation between existing, exiting and prospective members.

“Although valuation is relatively easy for listed assets, it is as we know more complicated for assets where there is no ready market mechanism to validate values.” Laker said. “The valuation approaches that are used have implications for performance measurement, decisions on portfolio rebalancing and for the allocation of investment returns to members.”

He said the risks tended to be magnified when assets that were infrequently traded and revalued were included in portfolios that must be valued much more frequently for unit pricing and crediting rate calculation purposes.