ASIC exposes flaws in how super funds value unlisted assets
If your superannuation fund invests heavily in unlisted property, private equity or infrastructure, you should be uneasy.
The corporate regulator has just exposed how unreliable unlisted asset valuations really are. The big losers are fund members who are left in the dark about the true value of their savings.
The Australian Securities & Investments Commission has just released a damning review of the way super funds and their auditors treat unlisted assets such as office towers, shopping centres, infrastructure projects and private equity.
The findings were blunt. Disclosures were inconsistent, valuations unreliable, and auditors too willing to accept whatever numbers they were handed. Only one of the five largest audit firms had done enough work to validate super fund valuations.
The rest, ASIC concluded, had not obtained sufficient evidence to back up the figures they signed off on.
This is what I’ve previously described as funds “marking their own homework”.
That matters because members rely on unit prices to reflect the real value of what they own. If those numbers are inflated, people are making retirement decisions based on fiction rather than fact.
ART loan default shows the risk
We recently saw the consequences play out in real time. The Australian Retirement Trust, our second-largest super fund, defaulted on a US office block loan after Microsoft walked away from its lease.
That $457m investment, made just five years ago, is now considered worthless. Members in ART’s default option have already absorbed the losses.
For years critics have warned that funds with large exposures to unlisted property and infrastructure have been slow to revalue their holdings. Losses are smoothed out over months or years rather than recognised when market values fall. That protects headline returns in the short term but masks the true risks members are carrying.
The ART default shows that tenants can leave, rents can vanish and billion-dollar office towers can become stranded assets overnight.
The risks go beyond property. Last year, AustralianSuper wrote down about $1.1bn from its investment in US ed-tech firm Pluralsight. The fund had co-invested alongside Vista Equity, betting on a high-growth story. When valuations collapsed, so did the investment.
For members it was another reminder of the danger in chasing opaque, illiquid deals. What looks attractive on paper can unravel quickly when market conditions turn.
Auditors under pressure
ASIC’s message to auditors is clear: no more free passes. Auditors are meant to be the gatekeepers. If they don’t challenge valuations, ASIC has signalled it will act.
The likely result is a shift towards far more conservative valuations. Auditors, worried about being caught in the regulator’s sights, will demand tougher standards and more evidence.
For super funds this means writedowns that may once have been delayed or softened are now likely to arrive sooner and hit harder. Over the next couple of years, members should expect more downward adjustments to the value of unlisted assets.
Why members should be uneasy
If your fund invests heavily in unlisted property, private equity or infrastructure, you should be uneasy. You simply do not know whether the balance you see each month is grounded in reality.
This creates a problem of fairness. Super funds allow members to enter and exit daily. If valuations are inflated, those who leave early may walk away with more than their fair share. Those who remain wear the losses later.
Valuing opaque, illiquid assets is difficult at the best of times. Leaving it to trustees and their chosen valuers creates obvious conflicts of interest. ASIC’s report makes clear that relying on these numbers without challenge is no longer good enough.
This is not the first time super funds have dragged their feet. During the pandemic, unlisted property and infrastructure values barely moved while listed markets plunged. Only later did the writedowns flow through. Members who thought they had been insulated from volatility were in fact being shielded from the truth.
The same pattern is emerging again. Office values have been hammered overseas. Listed property trusts have fallen since 2021. Yet many Australian super funds still show stable valuations for their unlisted property portfolios. The ART default shows the cracks are there.
The way forward
The heart of the problem is transparency. Super members deserve to know exactly what they own, how those assets are valued, and what they are worth today, not months or years later when the losses finally trickle through. Anything less is unacceptable in a system that locks away people’s life savings for decades.
Independent valuations should be frequent, detailed and disclosed in plain sight. Members should be able to see the current marks on their fund’s properties, infrastructure and private equity just as easily as they can see the price of listed shares. Without that openness, unit prices are little more than educated guesses.
Listed markets prove that it can be done. ETFs and shares are priced daily in full view of investors. There are no shadows, no smoothing and no surprises.
In a compulsory system that now holds close to $4 trillion of Australians’ money, transparency can’t be optional. It must be the standard.
Until funds are forced to reveal the true state of their unlisted assets, members have every right to question whether the balance on their statement is real.
Chris Brycki is the founder and CEO of Stockspot and the founder of Stockspot Super.
If you think your super fund is giving you the full picture on what your money is worth, think again.