Unlisted assets a better super barometer than listed shares

21 April 2020

A superannuation ratings house is arguing commentators are getting it wrong when they claim unlisted assets held by superannuation funds are valued at artificially high levels.

The ratings house, Chant West, is claiming the opposite is often the case.

In an analysis revealing the degree to which superannuation fund returns have been dragged down by COVID-19 uncertainty and volatility, Chant West said it believed “unlisted valuations are generally a better representation of fair value than listed market valuations which are often influenced by investor sentiment.

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“We know that listed markets tend to overshoot in good times and undershoot in bad times, so in a crisis this can drag prices down a lot further than where they should be. For example, Australian listed property prices fell 35% in March but has rebounded nearly 15% in April so far,” it said.

“In the current market crisis, many super funds invested in unlisted assets (both not-for-profit and retail) are acting responsibly by proactively conducting out-of-cycle revaluations – in other words bringing forward valuations for parts of their portfolios,” the Chant West analysis said.

“These revaluations have typically resulted in write-downs of between 6% and 10% for property and infrastructure and up to 15% for private equity. The reason those revaluations are not as dramatic as we’ve seen in listed markets is that the process is unemotional,” it said.

Dealing with the overall state of superannuation fund returns, the Chant West analysis said that the COVID-19 pandemic had served to bring a record bull run to end.

“This resulted in the median growth superannuation fund (61% to 80% in growth assets) falling 9% for the month and 10.1% for the quarter,” it said. “The return for the first nine months of the financial year also turned negative at -6.3%.”

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So you are tell me that valuations for properties that won’t be listed on the open market is better than actual market listed prices for actual sales. Oh yes and that’s why my personal property has never fallen in value. Future articles should state ‘this is a paid public advertisement for industry funds’.

Anything chantwest says needs to be taken with a schooner of salt, due to conflicts of interest. A fair market works in liquidity and buyers and sellers, not this tripe these guys are trying to wheel out here. They are a ratings house, not a very good one at that, cant even compare funds on actual asset allocations, they are not a research house with economists and so forth actually looking at these things in a partial light. Next please.

during the GFC, with infrastructure, the ports got hammered, and airports were considered safer. This time, the airports have been hammered. It's all very interesting to observe, from a risk management perspective. The real elephant in the room however, is are any of these valuations for unlisted infrastructure assets realistic or not? Even under normal conditions, the valuation process involved when funds acquire these investments is very opaque. About the only sure thing is the fee paid when the deal is done.

Thought this one would bring out the usual lot against anything unlisted. Are any of the valuations of listed infrastructure realistic or not? The herd mentality of buyers and sellers on the share market are well known and often buy and sell without regard to any realistic valuation. Anyone could have made the Chant West observation "listed markets tend to overshoot in good times and undershoot in bad times, so in a crisis this can drag prices down a lot further than where they should be". Happens all the time and that what active fund managers like - volatility is their meal ticket.

There is no issue with unlisted assets, until there is a liquidity crisis. Just ask HostPlus who are now selling part of their Property exposure to fund withdrawals. Chant West's comments are a little off the mark, how do you determine fair value for the Port of Brisbane if it's not for sale on an open market - you can't because it's opaque. For the record I use a portion of unlisted assets in my client portfolios. And as for volatility, how good are active managers looking now? The best of breed are doing as they should, protecting on the downside by circa 10-20% above market - that's what we pay them for. Index investors may well be in for a bumpy ride in a range-bound market for a long time.

Thanks for your views. If there is a liquidity crisis (like the one that is coming), then both listed and unlisted assets will be under consideration for selling if liquidation of assets is required.

People owning (listed) shares using margin loans may need to sell. Companies may have to sell shares if they are debt issues. Superannuation funds aim is to preserve capital but have to meet calls.

A residence doesn't have to be sold just to get a market valuation - there's valuers for that job. Same with art dealers, fine wine dealers and so on. There are far more unlisted assets assets are owned than listed assets and they are valued accordingly by specialised valuers.

Some posters here take a position that unlisted assets are unholy just because some industry funds hold them.

Superannuation is a long term deal and so it makes sense that a portion of a fund's assets are long term and only available in the unlisted form.

Bragg just wants to keep people poor by having voluntary superannuation. He will get a fat parliamentary pension.

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