Private asset valuations: evidence, not assertion

Valuations

Growth in private market assets held by super funds has been significant and all require periodic revaluation whether those assets are property, debt instruments, venture capital, crypto-currencies, infrastructure or early-stage tech (e.g. AI, robotics, medtech, fintech etc).

All of us have exposure to private market assets through our superannuation and both ASIC and APRA have been concerned as to the quality of investment governance in this asset class.

ASIC recently released a report detailing its findings as to large super fund management of valuation risks in private market assets.

Peloton has summarised those findings and sets out what best practice private market valuation processes look like.

It is the regulator's second review of superannuation fund financial reporting and audit.

The message is clear: valuation practices for unlisted assets have not yet caught up with the scale of the money involved.

What ASIC found

ASIC reviewed 42 registrable superannuation entity financial reports and six audits.

Five audit firms were included in the review.

The Australian Financial Review's analysis of the ASIC data shows the scale of the issue:

  • Of $275 billion in investments reviewed, about $80 billion (29 per cent) attracted findings.
  • Level 3 assets, which rely on unobservable inputs, accounted for $76 billion of that total.
  • Almost half of the $157 billion in Level 3 assets reviewed attracted findings.
  • Level 1 assets, which have quoted market prices, attracted no findings.
  • About $67 billion of the problematic valuations related to externally managed assets, including private credit.

On the trustee side, ASIC observed:

  • Heavy reliance on external fund managers for fair value information.
  • Limited ability to review and challenge significant assumptions as a result.
  • Delays in adjusting member balances after significant write-downs.
  • Fair value disclosures that say little about techniques, inputs and judgements.

On the audit side, ASIC observed:

  • Insufficient testing of prices provided by external managers.
  • Insufficient testing of the methods, assumptions and data behind those prices.
  • Insufficient audit evidence for some internally managed valuations.

Commissioner Kate O'Rourke stated that trustees cannot outsource responsibility for accurate valuations, even where external managers are involved.

ASIC will extend its surveillance in 2026–27 to managed investment schemes.

It has signalled that audit deficiency reports and enforcement action are available where breaches are significant.

Why this matters to members

Unit prices are struck from these valuations.

Members join and leave funds at those prices every day.

An overstated valuation affects:

  • Account balances.
  • Reported investment returns.
  • Fees charged on assets under management.
  • Equity between members entering and exiting the fund.

The underlying problem

The findings do not describe a shortage of valuation opinions.

They describe a shortage of valuation evidence.

A manager's mark accepted at face value is an assertion.

A valuation that a trustee can challenge and an auditor can test is evidence.

The distinction lies in a systematic, documented process.

The Peloton approach

Peloton's approach to private market valuation is built on recognised international standards rather than house methodology.

Standards anchor

  • The International Valuation Standards (IVS), updated effective 31 January 2025.
  • IVS 500 Financial Instruments for private credit and similar instruments.
  • The IPEV Valuation Guidelines for private equity and venture capital.
  • Alignment with the fair value hierarchy under AASB 13 and IFRS 13.

Method selection

  • The income approach, including the yield method, where active market prices are absent.
  • The market approach where reliable and recent comparable transaction data exists.
  • Discount rates that reflect credit risk, subordination and liquidity from a market participant perspective.

Calibration

  • Inputs are calibrated to the price at which the investment was made.
  • Subsequent changes in credit quality and market conditions, such as credit spreads, are then reflected.

Data scrutiny

  • Borrower and investee data is verified rather than accepted.
  • Professional scepticism is applied to management and manager supplied information, consistent with IVS 104.

Model discipline

  • Assumptions are documented clearly.
  • Professional responsibility is retained over any automated tools, consistent with IVS 105.

Back-testing

  • Modelled values are compared periodically with actual transaction outcomes.
  • Variances inform recalibration of the model.

Revaluation triggers

  • Quantitative triggers, such as movements in relevant indices or spreads.
  • Qualitative triggers, such as covenant breaches, refinancing events or investment specific news.
  • Triggers prompt out-of-cycle valuations rather than waiting for the next scheduled date.

Documentation

  • Key inputs, assumptions and rationale are recorded to the standard of IVS 106.
  • The file is designed so that a trustee can interrogate it and an auditor can test it.

Governance alignment

  • Valuation is kept independent of the investment function to manage conflicts of interest.
  • The process supports the APRA expectation of a board-approved valuation policy under SPG 530 and SPG 531.
  • It supports documented methodologies by asset class, including sources of inputs.
  • It supports a clear position on when independent external valuations are obtained.

Mapping the approach to the ASIC findings

  • ASIC finding: trustees could not challenge manager assumptions. Response: an independent, documented valuation gives the trustee a basis for challenge.
  • ASIC finding: auditors did not test methods, assumptions and data. Response: transparent inputs and calibration give the auditor something concrete to test.
  • ASIC finding: member balances lagged write-downs. Response: revaluation triggers bring forward recognition of value changes.
  • ASIC finding: disclosures lacked detail on techniques and inputs. Response: IVS 106 documentation supports richer fair value hierarchy disclosure.
  • ASIC finding: managers withheld information on legal, contractual or confidentiality grounds. Response: information rights and contingency procedures should be set before capital is committed, not at year end.

Conclusion

Private markets have grown rapidly within Australian superannuation.

ASIC data shows private credit grew by nearly 400 per cent over the decade to June 2025.

Valuation governance has not grown at the same pace in every fund.

The regulator has now said so twice.

A third review is unlikely to be as patient.

Trustees and audit committees may wish to consider:

  • Whether each Level 3 valuation is supported by evidence or by assertion.
  • Whether the valuation policy specifies when independent valuations are required.
  • Whether revaluation triggers are defined, monitored and acted upon.
  • Whether the audit file could withstand ASIC scrutiny.

Peloton welcomes enquiries regarding valuation policy review, independent valuations and valuation challenges at helpme@peloton.group.

 

Further reading: Superannuation fund private market investments: private credit valuations

#Superannuation #PrivateCredit #Valuation #PrivateMarkets #ASIC #APRA #Governance #Audit

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