APRA's asset scrutiny: Australia's regulatory body, the Australian Prudential Regulation Authority (APRA), has initiated a comprehensive examination of how pension funds assess the value of unlisted assets, spanning private equity to office complexes. This move is to mitigate risks associated with illiquid holdings that are prevalent in the A$2.5 trillion ($1.7 trillion) sector.

In a letter dated November 2023, which was recently disclosed, APRA sought information from various pension funds as part of its review into the governance of unlisted asset valuation. The examination encompasses commercial real estate, private equity, credit, and potential liquidity risks linked to exposure to unlisted assets.

While APRA has chosen not to comment on the review, Aware Super, the third-largest fund in Australia with A$160 billion in assets, acknowledged receiving a request for information related to the assessment of unlisted asset valuations. AustralianSuper, the largest fund, also confirmed receiving a similar information request.

Unlisted assets, such as shares in private companies, wind farms, and warehouses, are widely embraced in the pension sector, constituting up to 40 per cent of assets in certain funds. The review by APRA underscores longstanding apprehensions about the pricing of these assets, which infrequently trade. A prior review in 2021 revealed that revaluation frameworks were often inadequate, leading to the introduction of new standards in July, including quarterly asset valuations.

Despite the majority of governance practices being deemed appropriate in a September study on how pension funds valued private equity stakes in the Australian tech startup Canva, areas requiring improvement were identified. As part of the current review, funds are expected to furnish details about their processes for valuing unlisted assets, with a particular focus on the board's role in this procedure, according to an unnamed source familiar with the request.

(With Reuters Inputs)