Australian superannuation funds will face closer scrutiny of their private asset holdings this year in a first-of-its-kind probe, a senior regulator told an industry gathering last week.
Simone Constant, ASIC commissioner, said the regulator was “conducting surveillances of the financial reporting and auditing of targeted super funds, with a particular focus on expenses and valuations”.
“This is the first time super funds have been subject to scrutiny of this kind,” Constant said.
She said ASIC would also release a discussion paper in the first half of 2025 examining whether “the current market settings are right to support our economy – and Australians in their retirement”.
The rising concern across the Tasman about super fund exposure to private markets comes as the NZ government looks to ease the way for KiwiSaver schemes to invest in such assets.
In a consultation document published by the Ministry of Business, Innovation and Employment (MBIE) mid-December, the government laid out four proposals aimed at growing KiwiSaver investments in private assets.
Most importantly, the paper includes a proposal to allow ‘side-pocketing’ of unlisted assets, enabling schemes to side-step the current 10-day member transfer rules that could trigger liquidity and valuation problems during times of market stress.
According to the government rationale championed by Commerce Minister, Andrew Bayly, bumping up private markets exposure “could mean members get a wider range of investments in their KiwiSaver funds, which can lower the risks associated with investment, as well as potentially bring better returns over time”.
The MBIE paper also spouts the potential for KiwiSaver investments in local private assets to boost NZ growth companies “and help fund infrastructure projects to support our economy, which would help create jobs and lift standards of living”.
But while the NZ government seeks to pump-up privates from a low base – something like 2.5 per cent of KiwiSaver assets, or roughly $300 million, might fall under the category, according to Morningstar data – the Australian super universe has the opposite problem.
Constant said more than A$400 billion of “super assets are now invested in private markets”, or just over 10 per cent of a sector approaching A$4 trillion: the private proportion is higher still for the industry super fund cohort.
“These investments have been a driving force in these shifting market dynamics,” she said. “Companies staying private for longer. Companies leaving the ASX. But these investments also have implications for super fund members, in terms of valuations and liquidity.”
The ASIC commissioner also highlighted super fund member services and scams as “areas of concern” for the regulator.
Submissions on the MBIE ‘Enabling KiwiSaver investment in private assets’ are due by February 14.
Legal firm Dentons notes: “The wide scope of the consultation, and the fact that MBIE has not made specific proposals for reform on a number of points, means that there is a genuine opportunity to shape the changes as they happen.”