The ‘massive’ performance gap caused by static valuations between listed and unlisted funds is alarming investors and regulators.
Popular property funds are under increased scrutiny from the prudential regulator about how they value their assets as the performance gap between funds listed on the ASX and their unlisted rivals blows out to nearly 40 percentage points.
“Be very wary when investing in unlisted assets where valuations are subjective, not transparent and may vary from market prices. Just like you wouldn’t pay $50,000 for a car from one dealership if that same car was available at another dealership at $40,000.” Dunnin adds: “The low-to-high range for listed property index returns being 11 times the low-to-high range for unlisted index returns tells us everything we need to know about why APRA needed to intervene to impose discipline into how unlisted asset valuations are conducted.”
Unlisted property funds rely on periodic valuation rather than being valued by the market each day like their listed peers, which means unlisted valuations are often delayed and interest rates used to value their assets may not align with current market expectations.Damian Diamantopoulos, fund manager and head of property research for Australian Unity, says the issue is whether listed market assets have over-corrected or unlisted assets will devalue.
He points to a potential standoff between buyers and sellers of direct property assets, which includes offices, retail space and industrial property investment, as they assess the impact of recent interest rate rises.Stockspot’s Brycki also says that unlisted assets are “probably” not reflecting expectations of rising interest rates and increased risk to cash flows.
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