Unlisted assets in laymen's terms, are investments or assets that are not publically traded on a stock exchange. When an asset is listed, it means it is available for anyone to buy or sell on a stock market, and its price is regularly updated and known to the public. Unlisted assets, on the other hand, are not traded on these public markets.
Examples of unlisted assets include:
Unlisted assets can be a valuable part of a portfolio due to the lower parallel to assets on the stock market, however it is important to understand the characteristics and the role that they play within your superannuation investment portfolio.
The only constant when it comes to all investment markets is the presence of change. Superannuation within Australia has undergone significant changes since its introduction in the 1990s. Superannuation, often referred to as 'super' is a retirement savings system where employers and employees contribute a portion.
Currently 11% of your income goes to a superannuation fund of your choice, which is then invested and grows over time to provide income for retirement. Australia's superannuation assets has grown to over $3 trillion and it is important to note that as superannuation continues to evolve, further changes are bound to occur.
Super funds decide what their mix of assets are based on their members and preference of the investment managers. There is a divide in methodology with industry funds preferring a higher exposure to unlisted assets when compared to retail (or banking) owned super funds. This is not a case of right or wrong as a strategy, it is just different.
Retail funds have been slower to adopt unlisted assets, but this gap is closing, as they have attempted to play catch up. The main challenges for unlisted assets is that they are deemed to be 'lumpy' assets. A 'lumpy asset' is a term used to describe an asset that is not evenly distributed or regularly received.
An example of this is buying or selling a property of any sort which involves a large and infrequent transaction.
Industry funds, like all other funds, use various methods and processes to value unlisted assets, which can include; independent evaluation, valuation models, Income Approach, Market Approach and Net Asset Value to name a few. The valuation of unlisted assets is essential for determining the overall value of the fund and its performance of its investments. The issue is that each fund choses when and how often this process is undertaken.
The Government has suggested that from 2024, superannuation funds will need to value their unlisted component of their portfolio at least quarterly. This will allow the value of a members account balance to better reflect current valuation. The plan is that this will lead to more accurate account balances especially as more of the Australian population enters retirement.
As mentioned above, if the unlisted component of a portfolio has not been re-valued over a significant period, there may be greater fluctuations in valuations. Greater focus is being placed on commercial property as people returning to the office has not returned to its volumes pre-COVID. The demand for office space (especially in major capitals) may be softer when compared to historical averages.
To see how real estate assets are tracking, we can view the listed versions of these type of investments. In Australia they are referred to as REIT's (Real Estate Investment Trusts) and are listed assets on the ASX. They are not quite the same as owning a commercial property as you are investing in the company that controls the asset, not the property itself, but help provide an indication of similar unlisted assets.
The valuation of unlisted assets can be complex and requires expertise in the specific asset classes. Transparency, independence and consistency in the valuation process are critical to ensure that the valuations accurately reflect the fair value of the assets and protect the interest of super fund accumulators.
As with all investments there is a time a place for all within the cycle. The current tougher economic climate for assets like commercial property, infrastructure, toll roads, ports and utilities will likely deliver returns for investors over the long term. The most important part is to ensure that there is proper governance and compliant structures in place to validate the valuation methods being used.
2024 will likely be a year for adjustments and members in all funds should understand what their exposure to unlisted assets is as a percentage of their portfolio is and what impacts they could have.
With superannuation being one of the most effective investment vehicles for retirement savings, it's never too early (or too late!) to start engaging with super.
At Gallagher, our super specialists can help you navigate super, whether you're a business looking to support your employees or an individual seeking a tailored plan to achieve the meaningful retirement you aspire to, we have just the team to assist you.
The information and any advice in this article does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. When considering whether to acquire a financial product, before making any decision, you should obtain the relevant product disclosure statement.
This article may contain material provided by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. To the maximum extent permitted by law: no guarantee, representation or warranty is given that the information or advice in this newsletter is complete, accurate, up-to-date or fit for any purpose.
