ASIC delivers pass mark to managers on illiquid assets but no look at super

The Australian Securities and Investments Commission (ASIC) has delivered a generally clean bill of health to managed funds with exposures to illiquid assets in the early stages of the COVID-19 pandemic.

Looking at data collected between 1 March and early November last year, the regulator reviewed 10 fund managers which it described as responsible entities (REs) with around $165 billion in assets under management, including $21 billion in illiquid assets across both listed and unlisted schemes targeting retail and wholesale investors.

ASIC said the review covered direct real property, mortgage, infrastructure, private equity, private debt and hedge funds. However, it did not look at illiquid or unlisted assets held by superannuation funds.

And the good news for the fund managers is that ASIC believes there is no need to change existing settings.

“Over 2.5 million investors can take comfort from our review findings,” ASIC deputy chair, Karen Chester said. “Namely, that even during the market volatility of 2020, we found the illiquid-asset valuation practices to be robust, timely and consistent with ASIC guidance and industry standards.”

“Based on our review, we do not see any need to change our guidance on valuations for managed funds. We encourage the REs to closely review our findings specific to their practices, but also to look to the better practices of some fund managers we identified in our review,” she said.

The better practices identified in the ASIC review 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.

The regulator said poor practice in valuation was limited to minor inconsistencies between internal policy and compliance plans.