As interest rates rise at the fastest pace in decades, questions are growing over superannuation fund valuation practices of illiquid, private assets - notably property assets such as office buildings.

But AustralianSuper chief investment officer Mark Delaney says assets must be appropriately valued because smart members can take advantage of a lagging private market valuation.

Delaney spoke at the 2023 Morningstar Investment Conference in May, where he said the $280 billion fund was positioning for a recession.

Transcript: 


Annika Bradley: And staying on that theme, are you concerned about I mean, APRA has recently stepped in talking a lot about prescribing private market valuation methodologies. Is that an area of concern for you?

Mark Delaney: Yeah, it is a concern for member equity because if your private markets, if you've got a material percentage of your portfolio in private assets. And they're not appropriately marked if members change the investment options from one to the other. Say a smart member takes advantage of a lagging market valuation, a lagging private market valuation. They'll transfer value from the existing pool of members to the (one switch) and we don't think that's the right thing to do. So we go to a lot of effort to make sure that's not the case. So you've got to start with the premise that private market assets aren't market valued, they are appraisal valued. So they're valued differently, it's like saying you can't get a stock price for your house. You'll just get what the real estate agent and the valuer told you it is. So you can't get a stock market price for a private equity investment, because they'll need some appraisal valuation, but you can stress test that appraisal valuation against listed equivalence against other transactions. And we've got an independent valuations team who sit outside the investment team who do that stress testing of the valuations and that's another thing we put in after COVID actually was to build internal valuation team to stress test the private valuations to make sure we're not having value transfer between members.