Wednesday August 12 2020

News Source: Fund Regulation

Focus: Liquidity Risk Management

Type: General

Country: Australia

On 11th August 2020, the Australian Securities and Investments Commission (ASIC) announced it is aware that valuations of illiquid assets have been challenging as a result of increased economic and financial uncertainties due to the COVID-19 pandemic. In this context, it is more important than ever that valuations of managed fund assets are regular, robust and reasonable.

ASIC is reminding responsible entities of their obligation to ensure that valuations of their managed fund assets are regular and reasonably current having regard to the nature of the assets. One of ASIC’s focus areas this year is reviewing valuation practices amongst investment managers

Accurate valuation of fund assets, including illiquid assets, is needed for a responsible entity to determine:

  • the value of the units of a scheme for performance measurement
  • the unit price to allow for investors to enter into and exit from a scheme
  • the price for the selling and buying of specific assets, including stakes in a company
  • the value of assets in financial reports required by the Corporations Act 2001.

Ensuring fund assets are valued regularly and valuation processes are robust are part of responsible entities’ statutory duties to:

  • exercise a reasonable degree of care of care and diligence
  • ensure scheme property is valued at regular intervals appropriate to the nature of the property
  • act in the best interest of members of the fund
  • carry on their financial services business efficiently, honestly and fairly.

While the COVID-19 pandemic continues to disrupt financial markets, ASIC encourages responsible entities to ensure:

  • valuations are reasonably current and regular
  • valuations are performed using appropriate methods and assumptions for that asset class
  • assets are promptly written down should the cash flows of an asset be negatively impacted directly or indirectly by COVID-19 restrictions
  • estimates are developed on a sound and reasonable basis, and that they consider whether past performance and historical inputs are still reflective of future outcomes
  • valuation polices are regularly reviewed by the responsible entities’ management and board
  • valuations are carried out by unbiased valuers and valuers are periodically rotated by the responsible entity.

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