Unlisted assets bridge the equity market gap

SUPER funds had another shocking month in October but that should hardly be a surprise as equity markets had an even worse time. While the median balanced super fund fell by 6.7 per cent, the market was down 12.7 per cent for the month.

So why has your super fund been able to outperform the market? No, it's not necessarily because it's been invested in cash. Although that can help, funds usually only allocate a relatively small margin to cash. It's also because it's probably been invested across a range of asset classes, including unlisted assets.

Unlisted assets refer to private equity investments, infrastructure projects and direct property. As the name suggests, these types of assets are not listed on a market and are not priced daily. It is therefore difficult to get up-to-the minute prices - an issue that causes some consternation, especially recently.

Depending on the type of unlisted asset - and they can be as varied as commercial and residential property, tollways and airports and private companies - their value may have fallen since the end of last financial year. But because they are so diverse, it is probably unwise to make a blanket estimation of the sector's performance. Although I doubt whether they've fallen the 30 per cent the S&P/ASX has fallen over the same period.

Unlisted assets are very popular among some larger not-for-profit superannuation funds. Because of their sheer size, many of these types of fund can access these investments directly, rather than going through a managed fund. This reduces the cost of investing.

Once, super funds only valued them once a financial year but they have moved a long way since then. Funds that do have a large allocation to these assets value them on a rotating basis, usually every six months and sometimes every three months.

For example, The Motor Trades Association of Australia Superannuation Fund, or MTAA, which does have a large allocation in unlisted assets, values its unlisted asset portfolio on average every 31/2 months. MTAA is a client of asset consultant Access Capital Advisers. All superannuation funds use asset consultants to advise them how best to invest their money and many use more than one.

Access Capital Advisers' clients usually have a market-linked portfolio and a target return portfolio. The market-linked portfolio accounts for more than half of the total fund and the target return portfolio is invested in mostly unlisted assets.

Other Access clients include Westscheme, Prime and Statewide superannuation funds, which feature prominently in the performance tables. MTAA and Westscheme are both in the top five balanced investment options over the past five years. These funds appoint accounting firms to evaluate unlisted assets for a maximum contract of three years.

Generally, they are not allowed to value similar assets for competing funds during the same period. Unlike the market, which prices assets based on sentiment as well as value, an accountant's estimate could arguably be said to be more reliable, or at least closer to the asset's real value. But while regular valuations are important, these investments, much more than listed securities, have a long-term investment horizon of about five to 10 years.

A super fund invests in a toll road not because it wants a quick turnaround but because it believes it is a good investment that will provide its members with a reliable income stream over the longer term.

And anyone who invests in unlisted assets does so because they believe they will provide a return that is not correlated to the market.

So while your superannuation fund may not be able to get a daily price on unlisted assets, that is no reason to change funds, especially if you consider it a long-term investment and have plenty of time before you retire.