Differences in the returns of various super funds have primarily been driven by whether the funds are invested in unlisted or listed assets.
Super fund returns are always in the spotlight around the end of the financial year. This is when funds publish their annual performance results and send statements to members, and when researchers publish tables comparing fund returns.
Going forward, fund members may notice a wider-than-usual gap between the performances of various super funds. A large part of the difference in returns every year comes down to whether – and how much – super funds have invested in unlisted assets.
In recent years, super funds have been under pressure due to their practices around “lumpy” revaluations for unlisted assets concerning the quality, accuracy and frequency of revaluing unlisted assets.
Millions of super members are in the dark about these practices – and therefore about how much their investment is really worth.
In July 2022, the Australian Prudential Regulation Authority (APRA) released final revisions on Prudential Standard SPS 530 Investment Governance to ensure better member outcomes through updated requirements that increase stress-testing, valuation, and liquidity management practices.
The enhancements to strengthening investment governance have been in effect from January 2023 this year.
What are unlisted assets?
Unlisted assets are investments that are not traded through a public exchange or market, such as the Australian Securities Exchange (ASX) or the New York Stock Exchange (NYSE). Investors in unlisted assets can either directly own the asset or invest with others through an unlisted trust. The most common types of unlisted assets are:- Unlisted property – from small property syndicates with assets such as neighbourhood shopping centres to multi-billion-dollar unlisted property trusts which own major CBD office buildings, large shopping centres or hotels.
- Unlisted infrastructure – development or ownership of roads, rail, ports, airports and utilities.
- Private equity – invest in or own private companies, including early-stage investments in technology companies.
- Private credit – involves lending to privately owned businesses.
Can unlisted assets help or hinder my super returns?
The difference in returns comes down to whether – and how much – super funds have invested in unlisted assets. The end of the financial year is a crucial time to understand the scale of unlisted assets held within your super fund.
What are listed assets?
Listed assets are those that are traded on a stock exchange or share market, such as the ASX or NYSE. The most common type of listed asset is shares, also known as equities. Other listed assets include:- Listed property – offers the ability to invest in a diverse portfolio of large properties through an Australian real estate investment trust or real estate investment trust on an international share market.
- Listed infrastructure trusts – trusts that invest in major infrastructure e.g., roads, rail and airports.
- Bonds – issued by a company or government to raise money which constitute a loan from an investor.
- Exchange traded funds (ETFs) – collection of assets that track the performance of a major investment index e.g., the S&P 500 Index.
- Managed funds – money from a number of investors which is pooled to buy investments.
How are unlisted and listed assets valued?
The difference in how unlisted and listed assets are valued is what affects super fund returns at any given time.Timing of valuation
- Unlisted assets - are typically valued at set intervals. For example, quarterly or annually.
- Listed assets - are valued every day. Investors decide daily how much they are willing to pay for shares in the company or trust.
Method of valuation
- Valuations of unlisted assets are often made using historical or point-in-time factors. For example, unlisted property valuations are partly based on past sales of similar properties, which may have been completed when market conditions were different. As a result, values for unlisted assets are often different for the same asset in a listed market.
- Listed assets are valued by investors in an organised, open, and transparent market. Valuations are an accurate, up-to-the-minute reflection of what willing buyers and sellers in a market will pay.