Valuing Unlisted Infrastructure Assets in Super Funds

I have had my superannuation invested in the "Australian Infrastructure" option in my super fund over the last couple of years and have enjoyed good returns. In March, the unit price fell 7.5% due to valuations of assets (mostly airports) being affected by Covid 19. This was understandable and somewhat conservative compared to how listed assets were treated on the sharemarket. My question is: Will the next valuation of assets fall further, or as the valuations are future looking, will there be an improvement in the unit price? Interested in other people's' thoughts.

 

guesses only from me , but

do you need to draw down/take cash out in the next 5 years , if not you should worry more about returns , and project failures

valuations are always problematic with unlisted assets , but then so are listed assets for the opposite reason , panic can cause rapid liquidation events , in unlisted funds they normally freeze or severely limit withdrawals

if you are in unlisted assets should price ( without actual investment failures ) be an issue for you .

if i have this incorrect and you are in LISTED infrastructure .. say SYD , TCL , maybe TLS , your concern might be more on tightening credit at corporate level in the coming months

cheers

 

Having reviewed the odd large property portfolio over the years, only a portion (⅓) of each portfolio was valued annually so that values would not jump around wildly and be become unpredictable but would be smoothed over the timeframe.

How does the fund manager value their assets - Is it based on market value via a team of valuers or purely computer modelling?

 

Typically, infrastructure assets are revalued six monthly, although one off valuations have been done recently for obvious reasons. As to whether there are further losses this depends on how long airports etc remain closed. On the plus side, the drop in long term interest rates used in the asset discount rates will support valuations.

 

The fund I am in has their unlisted assets valued each quarter by independent valuers and the unit price is based on future projections of income and value of asset portfolio. I am in cash at the moment after timing my withdrawal to avoid previous downgrade. I would like to re-enter but feeling that another slight downgrade is on the cards........ and yes I like to move my super around.

 

Superfunds value unitised investments using estimates each and every week. Then make formal adjustments on a more irregular basis not less than quarterly with proper valuations conducted by valuation at least six monthly. APRA requested they do this already and most have already reflected write downs to member values of their account to avoid existing members taking value beyond true member interests. Its also possible many (even most) will have written down some investments beyond what is first feared and those assets may increase more quickly as data becomes available in the recovery phase (eg airport assets?) . Many funds have found their assets arent as exposed as first feared but they will hold some higher risk assets as well as moderate and balanced risk property eg Commonwealth agenies as tenants v retail shopping centres. This issue was well publicised for CMW (Cromwell) in last weeks media. They have many Commonwealth tenants (eg ATO) and so once the market realised this the listed values which had fallen, rose signifcantly. Many funds hold significant interests in unlisted funds and have clout to access data to assist valuation.

 

not particularly helpful to the original question , but if i need to i take the rate-able ( unimproved ) value of the property as a guide , , using a professional can be interesting , but what REALLY counts is if the property went on the market tomorrow WHAT will the buyer pay on settlement

unlisted property is much the same in my mind

a DIFFERENT approach to valuation would be return on investment will you own the property

so a property might tumble 30% but if the income is unchanged only your tax accountant and ATO care

 

It actually is totally a response to the original question. As someone who has audited and assisted boards of larger super funds I am familiar with the process of revaluation. Funds endeavour to reflect the lesser of expected value and market value to ensure member allocations over a full year are fair & reasonable. On the basis of conservatism most funds will revalue to the lesser of valuations and many adopt a panel to accept a range of valuations. Larger funds will appoint specialists to assist this eg Mercer. In this Covid period its possible many funds took low side vals after a period of time and these could yet rise again. In tight markets you may find vals fall short of reality but in the absence of a true sale that is all they can work on. They must be vigilant that no members are impacted by a unfair valuation (eg departing members). I encounted this once and the acts to remedy it were very complex and requiring APRA approval..

Rateable and other form of valuations would have no place under super law being used. They do not relate to a "market". They are alternative concepts of value but not market.
Super law does not permit a valuation based on cashflows and ROI. It calls for a "market valuation". This is generally accepted to mean many things but a property market would generally be defined as a market offer price less expected selling costs. Or a reasonable qualified opinion regarding that mavalue. Refer to SISR 8.02B and the ATO views :

Valuation guidelines for self-managed super funds

SMSF trustee/s should seek their auditor guidance if unsure. They can report a departure from market value as a ACR event where there is a concern the valuation is materially likely to alter the reporting. A unrealised value wont impact tax but can be contrary to SISA.

 

Excellent response Paul. Thanks.