AustralianSuper’s $1.1b Pluralsight loss echoes APRA on Canva
The Australian Prudential Regulation Authority (APRA) is facing political pressure to examine AustralianSuper’s reported loss of $1.1 billion as a result of its co-investment in education software group, Pluralsight.
Concern around AustralianSuper’s exposure to Pluralsight comes barely a year after APRA conducted a review of superannuation funds which were identified as holding the private equity technology company, Canva.
It also came as superannuation executives privately noted that while $1.1 billion represented a small fraction of AustralianSuper’s funds under management it was a large amount in the context of many other superannuation funds.
At the same time, NSW Liberal Senator, Andrew Bragg suggested that the reports indicated a governance issue.
“It is incumbent on superannuation funds boards to be aware of these things and ensure governance is properly enforced,” he said.
In early September last year, APRA, while finding that superannuation funds had taken an appropriate approach to their valuation of Canva, said there were several areas where improvement was needed including gaps in Board skillsets.
APRA said that it had observed some instances of:
- inadequate interim revaluation triggers in valuation policies;
- deficiencies in information provided to the Board;
- gaps in Board skillsets, willingness to challenge information provided and access to expertise; and
- lack of consideration of the expected performance and unit pricing impact of valuation decisions.
The regulator said that it had used its findings to informed planned thematic review on unlisted assets and liquidity risks, in addition to further developing APRA’s approach to stress testing.
According to reports on AustralianSuper’s investment in Pluralsight it was undertaken alongside PE manager, Vista Equity partners.
Contacted by Financial Newswire, AustralianSuper’s head of International Equities and Private Equity, Mark Hargraves said the fund remains strongly committed to Private Equity as it has been the top performing asset class over five and 10 years for the Fund, delivering 10% and 12% respectively for members.
“The higher risk/return profile for private equity is a characteristic of the asset class and we will continue to invest in private equity, venture capital and also the tech sector in general. These asset classes and the tech sector are strong value creators for members,” he said.
“The asset was well supported by a range of major global investors, however, the impact of the COVID pandemic, volatile macroeconomic conditions, rising interest rates and increasing competition combined to create a very challenging environment for the company.
“The combination of deteriorating sales revenue from US corporates due to cost cutting and the increase in debt service costs due to higher interest rates led to a sharp deterioration in the company’s trading performance triggering a restructure.”
“Although these types of situations are rare, they can occur from time-to-time and serve to reinforce the benefit of a diversified portfolio,” Hargraves said. “AustralianSuper has a rigorous ongoing valuation process, and this investment was continuously reviewed as part of that process.”
“The valuation has been fully accounted for so there will be no impact on members’ future earnings,” he said.
Do those 5 and 10 year numbers include the $1.1b loss from Pluralsight? I’d be willing to guess they are 30 June figures before they fessed up to the loss.
In any event, this won’t be the last private equity deal to blow up or produce a very poor result for investors. Most of the deals maturing over the next few years will have been undertaken pre-COVID, with interest rate expectations that turned out to be vastly different to what has eventuated. It would be interesting revisit those 5 and 10 year return numbers each year over the next few years?
Very good points. If they’ve been incorrectly valuing and delaying writing down unlisted assets then members who’ve drawn down or moved had benefited from a form of arbitrage at the expense of members still with the fund or in accumulation.
Given the complexity involved in investigating something like this I’m sure ASIC will just prefer to focus on the big ticket items like “greenwashing” and making sure advisers remembered to tick off the DDO box and declare any “significant” allocations to product providers.
Did they write the whole $1.1B off in one go? If so it probably doesn’t reflect well on their periodic valuation process.
Very pertinent point Fred. If it was written down in one go, then APRA should be more concerned over this then the duff investment. The reasons given for the write-off are Covid and rising interest rates; these occurred years ago.
“Although these types of situations are rare, they can occur from time-to-time and serve to reinforce the benefit of a diversified portfolio,”
Investing in start-ups is just about as risky as you can get. Should a super fund be involved in these high risk deals? And how is this reflected in their members asset allocations because this holds far more risk than investing in listed securities?
He says “AustralianSuper has a rigorous ongoing valuation process, and this investment was continuously reviewed as part of that process.” which begs the question how many more of these types of deals sitting in their portfolio, because their rigorous ongoing valuation process doesn’t seem to work. Are there more deals waiting to go up in flames?
It is interesting how they say it. Please ask your local bank to ask them let $1 million cash, i believe most CBA does not have 1 million in cash. They simply lost 1.1 billion.
Aussuper not only lend 1.1b AUD they also invested in that company as well. So a few needs to be done for the benefit of those aus super.
Demand a resignation of those trader/managers, then photo copy their passports and bank account both on and off shore for next 5 to 10 years to make sure there is no fraudulent activities. And see how their tax return is done and will be done.
Think about 1% commission for the 1.1billipn deal is mansion in Toorak or Mosman ok.