Australian institutional asset owners lead the world when it comes to investing in unlisted assets, particularly in infrastructure and property.
This appetite for unlisted infrastructure and property has been instrumental in helping Australia’s $4.5 trillion superannuation sector deliver strong and steady returns over the last three decades.
Until recently, unlisted assets such as property, infrastructure, private equity and private debt were often only accessible to large institutional investors due to high minimum investment amounts, restrictive liquidity provisions, lack of Australian investment vehicles (for overseas strategies) and lack of availability on wealth platforms.
However, growing investor interest and a desire to diversify their client base has led to many fund managers and product providers innovating to create products for unlisted assets that are now accessible to individual retail or wholesale investors at a much lower entry point.
Sharp price changes in listed assets during COVID-19, followed by higher inflation and interest rates have been a catalyst bringing unlisted asset valuations under scrutiny. There has been a lot of attention in the media and from regulators about how unlisted assets are being valued.
While having more choice to a broader range of investments beyond traditional asset classes has many benefits, it also comes with additional considerations. Financial advisers often facilitate access to unlisted assets for wholesale and retail investors, and therefore play an important role in helping clients understand these assets and how they fit within a diversified portfolio.
Our team recently attended a number of conferences for financial advisers where private markets have been a significant topic of discussion. A repeating theme in the discourse is valuations of private market assets and their reliability. The intention of this paper is to demystify private market valuations and support financial advisers in guiding clients through the landscape and addressing any concerns.
This paper examines:
- Why the landscape for private market investments has changed.
- Implications of greater private market access for retail investors from a valuation perspective.
- Why valuations are important.
- Dispelling common myths about unlisted asset valuations.
- Risks of unlisted asset valuations for retail and wholesale investors (acknowledging retail and wholesale clients are different from large institutional asset owners).
- How financial advisers can improve their unlisted valuation governance.
