HESTA to top up funds of 110,000 members caught in unlisted assets bungle during COVID-19 crisis

The Federal prudential watchdog has revealed defects in industry superannuation fund HESTA’s valuation processes as it was grappling with coronavirus market volatility in March 2020.

HESTA has agreed to adjust the account balances of 110,000 members after an Australian Prudential Regulation Authority probe confirmed inconsistencies when revaluing unlisted assets held by different groups of members.

HESTA cut the value of unlisted investment options held by members creating their own investment mix using the fund’s Choice investments on March 20, 2020.

But the fund did not cut the value of the same property, infrastructure and private equity investments for other members, including people using its default MySuper option, until a week later.

The regulator said one member was $17,000 worse off after switching their retirement savings from the devalued Your Choice option to the unadjusted MySuper option during the delay period.

“HESTA’s valuation decision in March 2020 was unfair to members who switched from adjusted single sector options to unadjusted options within that week,” APRA said.

In MySuper and other pre-set diversified mixes managed by HESTA, members’ money is invested in the same pools of unlisted assets that are also available to people choosing their own investment mix.

Industry super are big backers of assets that are not listed on stock exchanges or other public markets, arguably giving members both diversification and shields against market volatility.

APRA has raised a variety of concerns about super funds not valuing assets frequently enough and the adequacy of triggers for valuations outside of the trustee’s normal cycle.

As shown in the global financial crisis and the COVID-19 market crashes of early 2020, there can be great doubt about the accuracy of unlisted asset valuations when there has been big rises or falls in the value of similar publicly traded assets.

APRA said on Tuesday that HESTA’s decision-making processes for its out-of-cycle revaluations of unlisted assets “were not adequate for the deteriorating market conditions faced by superannuation trustees in March 2020”.

APRA said it had “engaged extensively” with HESTA on the matter and commenced a formal investigation in January this year.

It had decided to terminate its investigation without further action in light of HESTA improving its valuation policies and procedures.

The fund had agreed to make payment to members adversely affected by the delays.

APRA refused to identify the asset or member classes caught up in the inconsistent revaluations delay.

But a HESTA spokesman said it involved the unlisted infrastructure, property and private equity investments for people with their super in accumulation mode.

The lags also affected the unlisted property valuations of people with transition to retirement and full-blown retirement income streams.

HESTA said the median value of adjustments would be $17.

“This adjustment considers the difference in the value of units issued to these members at the time and investment earnings that would have subsequently accrued,” the spokesman said.