Australia’s pension regulator has issued a report critical of the pension industry’s private market investments, pointing to weak oversight of valuation governance and liquidity risk management in half of the country’s superannuation funds, and warning that it will crack down if they don’t shape up.
Superannuation funds have growing appetite for unlisted assets, including private credit, with 20% of total money in the retirement system already invested in private markets, the Australian Prudential Regulation Authority (Apra) says in the report published on December 15
But it found that 12 of the 23 registered superannuation funds require “material improvements” to either their private markets valuation governance or liquidity risk management frameworks, or both, in order to meet prudential standards.
In relation to valuation governance of unlisted assets, Apra highlighted particular weaknesses in board oversight and management of conflict of interest, revaluation frequency and triggers, valuation control, and fair value reporting.
As for liquidity risk management, Apra found particular weaknesses in stress trigger frameworks, asset liquidity risks, and action plans.
“These findings are concerning and highlight the need to further lift practices across the industry,” the regulator says in a statement released together with the report.
Apra says it will engage directly with superannuation trustees identified as having deficiencies, and they will be expected to formulate “appropriate and timely remediation plans” or face further action from the regulator.