ASIC reminds responsible entities of obligations regarding fund asset valuations

In the wake of the COVID-19 pandemic and associated economic disruption, ASIC has reminded responsible entities (REs) of their obligations to ensure regular and reasonable valuations of the assets they manage.

Whilst recognising that valuations, particularly of illiquid assets, has been – and continues to be – challenging during 2020 as a result of the economic and financial uncertainties wrought by the pandemic, ASIC considers it “more important than ever” that valuations of fund assets are regular, robust and reasonable. Indeed, valuation practices are one of ASIC’s key focus areas for 2020-2021 in its regulation of investment managers. ASIC sees the area as critical to maintaining financial system resilience and stability.

The pandemic potentially makes key elements of valuation far more difficult: these include a lack of availability of comparable transaction data, uncertainties concerning cash flows (including as a result of Government stimulus measures such as the JobKeeper wage support and the National Code of Conduct for commercial tenancies), how and when an economic rebound might occur and how risk should be priced.

Consequently, ASIC suggests that REs may need to carry out valuations more regularly, and where valuations are uncertain for a material proportion of a scheme’s assets, the RE needs to consider whether a reliable unit price can be determined. If not, the RE may need to freeze the fund for a period (suspending withdrawals and not issuing new interests in the scheme).

Coupled with this, ASIC reminds REs of their obligations to provide current and prospective fund members with timely, full and fair disclosure about asset values.

This article is part of the 2020 Financial Services Newsletter, click here to download.

The full ASIC article is available here if you are interested in reading further.

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