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Transcript
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. 3 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. 4 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 6 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. NA 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. 8 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. 9 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. 10 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: 11 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. 12 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. 13