Australia's pensions regulator will launch a review of asset valuations and liquidity management practices in the coming months, as funds in the A$3.6 trillion ($2.4 trillion) industry grow their holdings of unlisted assets and face scrutiny on the timeliness of valuing those securities.
The Australian Prudential Regulation Authority on Jan. 31 said pension fund managers must "ensure investment governance practices are sound, particularly in relation to asset valuation and liquidity management practices." APRA's inquiries will cover a cross section of large and mid-size funds with "material unlisted asset exposure," according to the statement.
Australia's pension funds have been increasing their holdings of private assets both locally and abroad in recent years. Last year, some of the biggest firms told Bloomberg they'd seen write-downs in their property portfolios, but said that hadn't materially impacted members' returns. Research company SuperRatings said the industry's balanced option — the default investment option where 41% of members save money for retirement — returned 9.6% in 2023, driven by gains in international stocks.
Last year, a government review warned APRA it must get better at identifying emerging systemic risks, including how funds value unlisted assets. APRA data show about 12% of government and pension assets it regulates are in unlisted infrastructure and property, and 5% is in unlisted equity.
The regulator said it would engage with pension funds in the first half of the year to look at their support for members who are entering the retirement phase. It will also look at what retirement products are available overseas that could work domestically.
APRA also highlighted areas of focus for banks, saying interest rates were a "material risk." It said the industry must maintain strong liquidity positions so that it is well placed to manage shocks, and it will be working to ensure banks hold adequate capital against the risk. APRA said it would focus on Tier 1 entities' liquidity stress testing capabilities, following its 2023 reviews.