APRA calls on super funds to improve unlisted asset valuations after Canva plunge

The drop in the value of tech darling Canva exposed super funds’ ‘inadequate’ valuation triggers and gaps in board skill-sets, APRA says.

Canva co-founders Cameron Adams, Cliff Obrecht and Melanie Perkins.

The plunge in the value of tech darling Canva exposed super funds’ “inadequate” revaluation triggers and gaps in board Skill-sets, the industry watchdog says.

The Australian Prudential Regulation Authority (APRA) has written to superannuation funds outlining areas for improvement, after a “focused review” of funds which owned stakes in Canva.

Canva’s valuation almost doubled to $US6bn in mid-2020 before a $US200m capital raise in late 2021 pushed that figure to about $US40bn.

That dropped by about a third in mid-2022, when venture capital firm Blackbird slashed its valuation of the design tools technology company by 36 per cent, bringing the value of the company back down to $US25.6bn.

Concerns were raised in the wake of that revaluation - and a drop in the value of some unlisted assets generally - that some superannuation funds were not moving fast enough to revalue their unlisted assets.

Morningstar said late last year that “disclosure requirements for unlisted infrastructure and private equity are appallingly weak”.

Morningstar’s head of manager selection, Grant Kennaway, said at the time that “there should be clear disclosure to all investors on unlisted assets.”

“There are no disclosure demands here, we are depending on the goodwill of the funds to do the right thing,’’ he said.

“We can’t allow big funds to put bad information under the rug in a compulsory superannuation system.”

Funds which own stakes in Canva include Australian Super and Hostplus, with superannuation funds also holding stakes in venture capital investors such as Blackbird.

APRA wrote to a select group of funds in October last year, posing a range of questions specifically about how they went about calculating and reassessing the value of their Canva stakes.

“In light of the deterioration in investment market conditions over the course of 2022 and Canva’s public profile as an asset in a higher-risk asset class, APRA selected Canva as the focus of a targeted review of unlisted asset valuation governance,’’ the regulator said on Monday.

“APRA assessed the majority of licensees’ governance practices related to their valuation of Canva as appropriate.’’

APRA said a review in 2021 had flagged areas for improvement in asset valuation practices, and there had been progress on that front.

“We observed examples of better practice by licensees, particularly relating to querying the valuation approaches of appointed investment managers and reflecting valuation adjustments according to the specific circumstances and policies of the licensee,’’ APRA said.

“Valuation methodologies applied by licensees were consistent with their respective valuation policies and licensee practices and policies were broadly in line with APRA’s expectations.’’

There were several areas flagged as requiring improvement however, with APRA observing that in some cases there were instances of “inadequate interim revaluation triggers in valuation policies’’.

It also said there had been deficiencies in information provided to the board, gaps in board Skill-sets including the “willingness to challenge information provided and access to expertise’’, and a “lack of consideration of the expected performance and unit pricing impact of valuation decisions’’.

“Through our supervision activities, APRA has continued to address these issues with licensees since the conclusion of the review,’’ the regulator said.

“APRA has also used the findings to inform planned thematic reviews on unlisted assets and liquidity risks, in addition to further developing APRA’s approach to stress testing.”

The regulator said that recently-released enhancements to the Prudential Standard SPS 530 also included more stringent requirements for licensees to “implement appropriate valuation governance as part of their investment governance framework’’.

While Blackbird scaled back its Canva valuation last year, the investor added at the time that it “remains one of the very best software companies in the world’’.

“What’s become clear in benchmarking Canva’s progress, is that Canva is growing faster and with greater efficiency than almost all of its top listed peers,’’ a spokeswoman said.

“You don’t need to look far on the horizon to see Canva’s valuation once again passing US$US40bn and we’re confident it will emerge from this period as an even stronger business.’’

Canva board member and early investor Wesley Chan recently told The Australian he expects the company to follow a similar growth trajectory to tech giant Google and said he would buy more shares if he could, as its co-founders Cliff Obrecht and Melanie Perkins ready new AI and enterprise features for public release in coming months.