(Bloomberg) -- One of Australia’s largest pension funds, A$88 billion ($57.3 billion) HESTA, will repay money to more than 100,000 members, after the regulator found its repricing processes for unlisted assets left them out of pocket as values tumbled during the Covid-19 pandemic.
The Australian Prudential Regulation Authority said HESTA members were treated unfairly when the fund didn’t reprice unlisted assets in some of its investment options, while it marked down the holding values of the same assets in others.
“HESTA’s decision-making processes for out-of-cycle revaluations of unlisted assets were not adequate for the deteriorating market conditions faced by superannuation trustees in March 2020,” APRA said in a statement Tuesday.
APRA found that in March 2020, HESTA lowered valuations on five “choice” investment options which held unlisted assets but didn’t adjust valuations in other options which had exposure to the same assets until a week later. That was unfair to members who were issued units in the unadjusted options during that week and particularly for those who moved from an adjusted to an unadjusted option in the period, it said.
In one case, a member was left A$17,000 worse off, APRA said.
The issue affected about 11% of HESTA’s 1.1 million members, a HESTA spokesperson said in an email. The median value of the repayments will be about A$17.
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Australia’s fast-growing A$3.9 trillion pension system has been under intense scrutiny over the frequency and transparency of valuations in unlisted markets. Some pension funds have told Bloomberg the office assets in their portfolios fell by as much as 20%. About one fifth of Australian retirement money is invested in private assets.
APRA said it began its investigation into HESTA in January. It said given HESTA had decided to make payments to affected members and improve its valuation policies and procedures, the investigation had been closed without further action.
“Australian managers of superannuation products are on notice they could be forced to reimburse investors for investing mistakes,” Bloomberg Intelligence senior industry analyst Matt Ingram said.
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