Download Asset Valuation Policy

SAS T
Trustee
e Corporation
n
Date
e: June 2016
Assset Valu
V uatio
onPo
olicy
Asset Valuation Policy
1.
Introduction
3
2.
Investment Assets and Valuation Methods
4
3.
Considerations for Unlisted Assets
8
4.
Valuation models
10
5.
Valuation reporting
11
6.
Roles and responsibilities
11
7.
Compliance
11
8.
Review
12
Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
Asset Valuation Policy
1.
Introduction
(a)
The purpose of this Asset Valuation Policy (Policy) is to set out the
arrangements and processes of SAS Trustee Corporation (STC) to ensure
that the value of assets of the STC schemes are measured reliably and that
valuation risk is appropriately managed.
(b)
STC wishes to carry the investment assets of the STC schemes:
(i)
at valuations that reflect true asset values and which satisfy Australian
Accounting Standards;
(ii)
that ensure valid crediting rates; and
(iii)
that reflects the valuation expectations of regulators such as
the Australian Prudential Regulation Authority.
(c)
STC’s overlying policy is that investment assets are carried and reported at
Net Market Value – that is, the amount which could be expected to be
received from the disposal of an asset in an orderly market after deducting
costs expected to be incurred in realising the proceeds of such a disposal.
(d)
STC’s preference is that assets are valued using independent valuation
sources. To that end each asset type is considered in line with the following
valuation sources:
(i)
quoted market prices for investments in active markets that are
objective, observable and unadjusted. If these are not available, then;
(ii)
objective, observable quoted market prices for similar investments in
active markets. If these are not available, then;
(iii)
quoted prices for identical or similar investments in markets that are
not active. If these are not available, then;
(iv)
market-based inputs, other than quoted prices, that are observable for
the investments. If these are not available, then;
(v)
subjective, unobservable inputs for investments where markets are
not active.
Section 2 below sets out the valuation source for each asset type.
(e)
Net Market Values are to be reflected in STC’s financial reports and also
contributor reserves and employer reserves.
(f)
In respect of contributor reserves and employer reserves, Net Market Values
are to be updated at least monthly.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
2.
Investment Assets and Valuation Methods
(a)
Different asset classes require different valuation techniques to arrive at Net
Market Values.
(b)
Further, to arrive at Net Market Values, disposal costs may need be
deducted from the market values.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
(c)
STC’s valuation methods are as follows:
Asset Class
Valuation Methodology
Valuation Source
Valuation Frequency
Disposal Costs
Short Term
Securities
Market rates, in line with the
Custodian’s policy
Independent valuation source as
used by the Scheme Custodian
and agreed with STC
Each business day
Nil assumed.
Each business day
Nil assumed.
Each business day
Australian Equities – 0.15% of
market value
International Equities – 0.20% of
market value
REITS – 0.10% of market value
Global listed infrastructure –
0.25% of market value
The valuation is supported by an
annual independent audit of the
balances reported by the
custodian.
Fixed Interest
Market rates in line with the
Custodian’s policy
Independent valuation source as
used by the Scheme Custodian
and agreed with STC
The valuation is supported by an
annual independent audit of the
balances reported by the
custodian.
Listed equities
and unit trusts
Quoted marked prices using the
daily closing price on the
relevant securities exchange
Independent valuation source as
used by the Scheme Custodian
and agreed with STC
The valuation is supported by an
annual independent audit of the
balances reported by the
custodian.
inclusive of all disposal costs.
Forward Foreign
Exchange
JPM pricing model
JPM pricing model
Each business day
5
Captured in the valuation
models.
Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
Asset Class
Valuation Methodology
Valuation Source
Valuation Frequency
Disposal Costs
Unlisted unit
trusts
Withdrawal unit prices as
advised by the relevant trustee /
responsible entity supported by
annual independently audited
financial statements of the trust
Independent valuers appointed
and reporting to the relevant
investment manager.
At least monthly (noting some
legacy assets may be valued
less frequently), supported
annually by independently
audited financial statements of
the trust.
Captured in the buy/sell spread.
The responsible entity’s
calculation of the buy/sell spread
is reviewed as part of the due
diligence of a manager before
the manager is appointed.
Unlisted
equities1
Interim valuations by the
investment manager supported
by at least annual independent
valuations for material assets.
Interim valuations are to be a
roll-forward of the previous
independent valuation.
The independent valuation will
use the valuation method
selected as most appropriate by
the independent valuer. As part
of its valuation the independent
valuer will cross check with other
valuation methods that may
include a sales comparison
approach.
Independent valuers appointed
by and reporting to the relevant
investment manager.
Full independent valuations are
conducted at least annually.
Captured in the valuation
models and/or applied by the
custodian.
1
Where the asset is held under a
sub custody arrangement, the
valuation is supported by an
annual independent audit of the
balances reported by the sub
custodian.
Including special purpose vehicles wholly owned by STC to hold individual assets
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If any of the STC Board, its
Investment Committee, its Risk,
Audit and Compliance
Committee or STC’s
management determines, a full
independent valuation may be
conducted in response to events
that have the potential to
materially change an asset’s
value.
Provided the most recent full
independent valuation continues
to be valid, interim valuations
are conducted at least quarterly.
Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
Asset Class
2
Direct property
Valuation Methodology
Valuation Source
Valuation Frequency
Disposal Costs
Full independent valuations are
conducted at least annually.
The independent valuation will
use the valuation method
selected as most appropriate by
the independent valuer. As part
of its valuation the independent
valuer will cross check with other
valuation methods that may
include a sales comparison
approach.
Independent valuers appointed
by and reporting to the relevant
investment manager.
Full independent valuations are
conducted at least annually.
Captured in the valuation
models.
Where the asset is held under a
sub custody arrangement, the
valuation is supported by an
annual independent audit of the
balances reported by the sub
custodian.
If any of the STC Board, its
Investment Committee, Risk,
Audit and Compliance
Committee or STC’s
management determines, a full
independent valuation may be
conducted in response to events
that have the potential to
materially change an asset’s
value.
Provided the most recent full
independent valuation continues
to be valid, interim valuations
reflect capital expenditure on the
asset.
Derivative
contracts
2
Exchange traded:
Market value using the daily
closing price from the relevant
securities exchange
Listed:
Independent valuation source as
used by the Scheme Custodian
and agreed with STC
OTC (e.g. swaps):
Provided by individual
investment manager where STC
is satisfied that the manager has
adequately managed the
conflict.
The valuation is supported by an
annual independent audit of the
balances reported by the
custodian.
Including special purpose vehicles wholly owned by STC to hold individual assets
7
Listed:
Each business day.
OTC:
If any of the STC Board, its
Investment Committee, Risk,
Audit and Compliance
Committee or STC’s
management determines, a full
independent valuation may be
conducted in response to events
that have the potential to
materially change an asset’s
value.
Nil assumed.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
(d)
Valuation of listed assets are validated through an annual independent audit
report on the net assets STC received from its custodian.
(e)
Valuations of infrastructure and direct property assets are validated by:
(i)
Comparing the inputs on the latest valuation against inputs for
previous valuations. STC will ask the investment manager to have the
valuer justify any change in inputs.
(ii)
Ensuring that the valuer has adopted a recognised valuation method
and has compared the result with at least one other recognised
valuation method, generally a sales comparison.
(f)
If STC is not satisfied with a valuation, the investment manager must discuss
and resolve STC's concerns with the valuer.
(g)
Valuations of unlisted trusts other than special purpose vehicles wholly
owned by STC to hold individual assets are validated by comparing the unit
prices on distribution statements against unit prices calculated by dividing
the number of units on issue as against the latest audited valuation provided
to STC.
(h)
In respect of prices for listed securities advised as stale by the custodian (as
in line with its policies as advised to STC from time to time), the General
Manager, Finance is to assess the materiality of any stale price and
document whether any further action is needed to estimate the price at
which the asset can be sold in an arm’s length transactions as of valuation
date. The Chief Investment Officer is to assist in determining the price.
(i)
STC may consider appointing an independent auditor to review selected
independent valuations if STC considers that it needs independent, expert
advice. The external auditor is to report his or her findings to STC’s
management who will then report the auditor's findings to the appropriate
Committee and / or the Board.
3.
Considerations for Unlisted Assets
3.1
Valuation risks and controls for unlisted assets
(a)
Unlisted assets are different to listed assets as they do not trade through
exchanges or central clearing agents. Accordingly, they do not have readily
available market values. Unlisted assets include infrastructure investments,
direct property and unlisted trusts.
(b)
STC recognises that unlisted investments have additional valuation risks
compared to listed assets due to factors such as multiple management
layers, complex investment structures and lack of transaction data. Further,
obtaining frequent valuations can be costly and time consuming.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
(c)
3.2
Where STC is not satisfied about the quality of a valuation, STC may
determine not to proceed with the investment or, where STC is already
invested in the asset, will seek to resolve its concerns with the investment
manager.
Valuations of infrastructure and direct property
(a)
Consistent with STC's mandatory outsourcing model, STC requires its
investment managers for unlisted assets to provide interim valuations and to
arrange annual independent valuations.
(b)
STC includes valuation requirements in its agreements with investment
managers of infrastructure and direct property and in side letters with
trustees / responsible entities of unlisted trusts. The ability for STC to obtain
reliable valuations is part of the due diligence process in assessing a
potential investment manager or unlisted trust.
(c)
STC's valuation requirements for interim valuations of unlisted assets
include:
(d)
(e)
(i)
the investment manager to clearly address conflicts arising from the
provision of interim valuations in its conflicts management policy;
(ii)
the investment manager to provide STC with a copy of its asset
valuation policy and any amendments to the policy; and
(iii)
the investment manager to confirm annually to STC that its asset
valuation policy has been adhered to.
STC's valuation requirements for independent valuations include:
(i)
the investment manager to appoint the valuer only after a review of
the valuer's valuation methodology, resourcing, qualifications, areas of
specialisation and experience;
(ii)
at least annual valuations by a suitably qualified and reputable
independent valuer;
(iii)
the valuer to be rotated on at least five yearly basis;
(iv)
to the extent possible, for STC to be able to rely on valuations;
(v)
the investment manager to be satisfied as to the robustness and
limitations of valuation methodologies applied by the valuer; and
(vi)
the investment manager to provide STC with timely reporting on
investment valuations.
The Investment Team is responsible for liaising with investment managers in
relation to the above requirements, including being satisfied as to the
independence of the valuer and the ability for STC to rely on valuation
reports.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
3.3
4.
(f)
The Investment Team must also provide copies of independent valuations
received from investment managers to the General Manager, Finance to
review and, where necessary, query the appropriateness of the valuation
methodology adopted and review any assumptions used, having regard to
the complexity of the investment.
(g)
STC examines changes in valuation inputs / assumptions to ensure changes
are supported and appropriate.
(h)
As a result of a material (typically 10%) change in a valuation from one
period to the next, STC may require the investment manager to obtain an
alternative valuation to validate or update the valuation result. Any changes
in value are to be reported by management to STC’s Risk, Audit and
Compliance Committee and Investment Committee.
(i)
If the STC Board, its Investment Committee, Risk, Audit and Compliance
Committee or STC’s management determines, a full independent valuation
may be conducted in response to events that have the potential to materially
change an asset’s or group of assets’ value. The resulting valuation(s) will be
used to adjust the carrying value of the asset(s) if STC’s Board, Investment
Committee, Risk, Audit and Compliance Committee or management
determines the revised amount is an appropriate estimate of arm’s length
value. Any changes in value are to be reported to STC’s Risk, Audit and
Compliance Committee and Investment Committee.
Valuation of unlisted unit trusts
(a)
For unlisted unit trusts other than special purpose vehicles wholly owned by
STC to hold individual assets, STC's valuation requirements include:
(i)
annual audited financial statements for the trust (to assist
independence from the trust’s asset manager);
(ii)
a requirement that the trustee / responsible entity explain how any
buy/sell spread is determined; and
(iii)
a requirement that the trustee / responsible entity annually confirm
that, as at 30 June calculation of any buy/sell spread is unchanged
from the previous 30 June explanation.
Valuation models
(a)
STC’s use of valuation models may be as follows:
(i)
models developed by STC;
(ii)
models developed by its custodian and approved by STC;
(iii)
models developed by independent valuers for unlisted assets and the
use of these models by relevant investment managers.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
5.
Valuation reporting
The results of valuations are reported in aggregate to the Risk Audit and
Compliance Committee in its consideration of STC’s annual financial statements.
The report will note any valuation concerns and how those concerns were
resolved.
6.
7.
Roles and responsibilities
(a)
It is the role of the Board of STC to set this Policy and receive regular
reporting on compliance with and reviews of this Policy.
(b)
It is the role of the Risk, Audit and Compliance Committee to, amongst other
things:
(i)
oversee compliance with this Policy;
(ii)
consider the results of the reviews of this Policy and recommend any
changes to the Board;
(iii)
ensure that valuations are appropriately applied.
(c)
The General Manager, Finance is responsible for the application of this
Policy and for ensuring it is appropriately communicated to staff.
(d)
The Investments Team is responsible for ensuring investment managers,
particularly unlisted asset investment managers, are aware of and comply
with this Policy.
Compliance
(a)
The Risk, Audit and Compliance Committee is responsible for ensuring
compliance with the procedures in the Policy.
(b)
Each year the General Manager, Finance must present to the Risk, Audit
and Compliance Committee:
(c)
(i)
accounting policies to be used for the valuation of investment assets
(as part of the Committee’s review of the pro forma financial report)
(ii)
confirmation that the valuation policy has been reviewed and updated
or a statement that the existing policy has not changed, accompanied
in either case by the valuation policy
(iii)
substantiation in respect of valuation to be obtained over each class of
asset
(iv)
confirmation that the required substantiation has been obtained.
Every year as part of its annual risk review, the General Manager, Finance
reviews and confirms that annual valuations of unlisted assets:
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
(d)
(i)
are independent of the relevant investment manager;
(ii)
involve the valuer verifying inputs and assumption provided by the
investment manager;
(iii)
are conducted by recognised and reputable valuers and are not the
subject of “valuation shopping”;
(iv)
are confirmed by the relevant investment manager as being
undertaken in accordance with this Policy and the manager's own
valuation policy;
(v)
involve increments and decrements being taken up in the period
observed.
The Chief Audit Executive will arrange for an independent (external) audit of
this Policy every five s or as may be considered necessary by the Risk,
Audit and Compliance Committee. The findings of the audit will be reported
to the Risk, Audit and Compliance Committee.
8.
Review
8.1
Annual Internal review
The General Manager Finance and the Chief Risk Officer must review
this Policy, and the procedures underpinning the Policy to:
(a)
cover aspects of STC’s business which are not currently considered
(e.g., new investment services to be undertaken);
(b)
consider any changes to the environment that impact on business operations
and should be dealt with in this Policy;
(c)
improve existing procedures; or
(d)
reflect changes in the Corporations Act, Superannuation Administration
Act 1996 (NSW), SIS Act or relevant APRA or ASIC standards or policies,
and report the results of the review to the Risk, Audit and Compliance Committee.
8.2
External review
(a)
The General Manager, Finance is responsible for arranging for an external
review of the Policy, in conjunction with any review of STC’s governance
structure, every five years. Such review should verify that appropriate
valuation policies are in place, address best practice and industry standards
and make recommendations to STC as to how they could be improved.
(b)
The results of the review must be reported to the Risk, Audit and
Compliance Committee.
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Asset Valuation Policy
STATE SUPER
SAS Trustee Corporation
STC’s Board or its Investment Committee or Risk, Audit and Compliance Committee may
request that the valuation policy be reviewed more frequently. Such review may be either
internal or external.
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