REs get COVID-19 pass mark

The Australian Securities and Investments Commission (ASIC) has found responsible entities (REs) managed the challenges of illiquid asset valuation during the early stages of the COVID-19 pandemic well, but there are areas of improvement needed. 

The corporate regulator looked at the governance frameworks, policies and procedures the REs used to undertake the valuations and found they had adequately responded to the increased valuation risks during the review period. 

According to ASIC, REs continued to “provide timely valuations of their illiquid assets, including by increasing the frequency of valuations, expanding the sources of information to benchmark valuations and assumptions”. 

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Additionally, the REs also continued to be able to obtain and rely on external valuations and had adequate arrangements to manage conflicts of interest associated, and appropriately revalued illiquid assets downwards and upwards as appropriate. 

The review also identified some better valuation practices by the REs, which included: 

  • Close board supervision of valuation processes and involvement in the adoption of the external valuations; 
  • Segregation of roles, involvement of independent committees and the use of multi-level review processes for internal and external valuations to ensure the accuracy of valuations and to support a robust conflicts-of-interest framework; 
  • Recognition of conflicts in valuation processes as a standing organisational conflict and addressing these in compliance frameworks to ensure robustness and independence in the valuation process; and 
  • Clearly defined valuation frequencies and trigger points (such as percentage variation of internal valuation compared to the last external valuation) for external valuations to take place. 

ASIC said estimated that more than 2.5 million investors were likely to have been financially exposed to the managed funds of the REs that were reviewed. 

According to ASIC, poor practice in valuation was limited to only minor inconsistencies between internal policy and compliance plans. 

ASIC gathered data between 1 March and early November 2020 when the industry was dealing with significant economic uncertainties because of the pandemic and reviewed 10 fund managers (REs with around $165 billion in assets under management, including $21 billion in illiquid assets). 

These included listed and unlisted registered schemes targeted at retail and wholesale investors and the review covered direct real property, mortgage, infrastructure, private equity, private debt and hedge funds. 




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