The Australian superannuation regulator has uncovered widespread liquidity management failings in the sector, especially in the treatment of unlisted assets.
Following a recent review of 23 regulated superannuation entities representing 80 per cent of assets under its purview, the Australian Prudential Regulation Authority (APRA) found 12 required “material improvements in either or both their valuation governance or liquidity risk management frameworks”.
“In relation to unlisted asset valuation governance, particular weaknesses were observed in the areas of board oversight and conflict of interest management, revaluation frequency and triggers, valuation control, and fair value reporting,” APRA says in a release. “In relation to liquidity risk management, particular weaknesses were observed in the areas of liquidity stress trigger frameworks, unlisted asset liquidity risks and liquidity action plans.”
The findings come just a week after the NZ government floated measures to increase the exposure of KiwiSaver investors to private assets.
In a statement at the time, Commerce Minister Andrew Bayly noted that “only around 3 per cent [of KiwiSaver money] is invested in unlisted assets, compared to around 16 per cent of Australian superannuation funds”.
Under the NZ government consultation released last week, KiwiSaver providers could retain any illiquid portions of member portfolios for extended periods following transfer requests that current regulations stipulate must be executed within 10 working days.
The Financial Markets Authority (FMA) refuted some industry claims this October that the regulator’s liquidity risk management guide served as a barrier to investing in private assets.
APRA oversees the mainstream superannuation market that currently accounts for about A$2.7 trillion held in industry, retail and other professionally managed funds.
“… around $500 billion invested in unlisted assets such as property, infrastructure, credit and equity,” the release says. “As the proportion of unlisted assets continues to increase, addressing risks related to valuation governance and liquidity risk management is a critical issue for the industry and a priority for APRA.”
The Australian Tax Office regulates the almost A$1 trillion self-managed super fund sector that boasts more than 625,000 funds and over 1.1 million members.
Margaret Cole, APRA deputy chair, said in the statement that super fund trustees “must ensure they have timely and reliable information on the value of assets when making investment decisions” as well as effective liquidity risk management processes.
“These latest review findings are concerning and indicative of the fact that many trustees have more work to do to lift their valuation and liquidity risk management practices,” Cole said. “APRA expects trustees to review these findings carefully and formulate appropriate remediation plans where needed.”
in a recent Global Financial Stability report, the International Monetary Fund also noted that with exposure to unlisted assets in excess of 20 per cent and a three-day deadline to switch member assets on request, Australian super funds faced a “liquidity mismatch”.
The mismatch “could affect members’ outcomes in a liquidity stress event”, the IMF report says.