An Australian retirement fund regulator found the fast-growing A$4.1 trillion ($2.6 trillion) industry has weak oversight of private markets valuations, warning it may take further action if the sector fails to improve its governance and liquidity risk management.
The Australian Prudential Regulation Authority’s review, released Dec. 17, looked at 23 retirement funds with a range of asset sizes and business models. It assessed the practices in relation to billions of dollars invested in private assets including property, infrastructure, credit and equity, along with liquidity risk management.
The body found that 12 funds need material improvements in either or both their valuation governance or liquidity risk management frameworks, calling the findings concerning. It didn’t name which funds it reviewed.
“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 said in a statement.
Australia’s retirement funds industry regularly ranks among the top systems globally, and faces intense scrutiny from APRA, including an annual performance test, and the Australian Securities and Investments Commission. The body regulates about A$2.7 trillion, while the most remaining money is invested in self-managed super funds.
Governance has become a focus for the regulator as the proportion of unlisted assets continues to grow. About 20% of the total money in Australia’s retirement system is invested in private markets, while funds have shown a growing appetite for investing in unlisted assets, including private credit.