Private Market Assets – APRA Risk Management Concerns

A discussion document entitled "Enabling KiwiSaver investment in private assets" was released late last week by MBIE with feedback sought by mid-Feb 2025.

Its stated scope focuses on matters relating to the use of "liquidity risk management tools", reporting categories for private assets, valuation methodology changes in trust deeds, and fee disclosures. It is good that an open discussion is being facilitated, although the scope of the document seems fairly narrow.

The much higher (relative to NZ) proportion of such assets included in superannuation schemes in overseas jurisdictions, Australia in particular, is often presented as a form of "benchmark" we could/should be aspiring to here in NZ (noting of course that not all of these assets are actually invested in Australian entities).

Today, APRA released its findings from a review into superannuation trustees’ progress in implementing enhanced valuation governance and liquidity risk management requirements. Assets of APRA-regulated superannuation entities totalled approximately $2.7 trillion at the end of 30 June 2024, with around $500 billion invested in unlisted private assets. APRA noted "As the proportion of unlisted assets continues to increase, addressing risks related to valuation governance and liquidity risk management is a critical issue for the industry and a priority for APRA."

It noted "In relation to unlisted asset valuation governance, particular weaknesses were observed in the areas of board oversight and conflict of interest management, revaluation frequency and triggers, valuation control, and fair value reporting. In relation to liquidity risk management, particular weaknesses were observed in the areas of liquidity stress trigger frameworks, unlisted asset liquidity risks and liquidity action plans." "These findings are concerning and highlight the need to further lift practices across the industry."

To the extent that looking across the Tasman provides a reference point representing the opportunity for private assets in KiwiSaver, then we should also look to it for insights as to the associated risk management challenges, future dated as they may be from a NZinc perspective, that go with that level of exposure.