May 28, 2026
Private assets on the increase?
In April 2026 the Financial Markets Authority (FMA) published a report entitled Private assets in managed funds: Investment landscape and valuation practices (Private Assets). This report analyses the outcomes of a voluntary survey conducted in July 2025 across managed investment scheme (MIS) managers in New Zealand. Of the thirty managers surveyed, sixteen responded, with seven confirming exposure to private assets within their retail managed funds. The report provides statistical insights based on these responses, along with analysis of private asset valuation practices.
Private assets are defined in the report as being “not traded on public exchanges” (Private Assets, p. 5). These unlisted assets are stated to belong to the following five main types:
It is strange to see commodities included under private assets, as these are normally invested in via publicly traded derivatives (futures and options). Managed funds would not usually directly buy bulky physical commodities, which require storage and transportation, and may be perishable.
For MIS managers, private assets must offer clear advantages to justify their inclusion within managed funds. According to Private Assets, global investment in private assets has grown rapidly as investors seek higher returns and greater diversification than public markets alone can provide. To realise these benefits, managed fund allocations to private assets must be large enough to influence meaningfully portfolio performance and diversification, otherwise the advantages may be diluted.
However, these benefits are accompanied by drawbacks. Private Assets highlights the challenges of valuation and illiquidity, noting also that historically private assets have been less accessible to retail investors. The report emphasises the need for more frequent and transparent MIS manager communication about private assets with investors, especially as exposure to private assets increases. During periods of market volatility, additional ad hoc communication may also be appropriate (ibid., p. 24).
The key disadvantages of private assets can be summarised as potential difficulty in valuation, illiquidity, and opacity or lack of transparency. While the report focuses primarily on valuation, it also underscores the importance of clear investor communication in overcoming opacity. Liquidity issues are acknowledged in the report but not addressed in detail.
Despite these challenges, access to private assets for retail investors has improved due to “technological and regulatory developments” (ibid., p. 5). External forecasts cited in the report anticipate substantial growth in private asset markets, with total value expected to double to US$30 trillion within the next decade and retail participation rising significantly by 2032.
In New Zealand, current exposure remains limited. The report finds that private assets represent approximately 8% of total assets under management (AUM) across surveyed retail funds, dropping to around 5% when certain specialised funds are excluded. In KiwiSaver funds specifically, the allocation is even lower at 2.4%. Historical data indicates that allocations to private assets in KiwiSaver funds have declined since 2018, with a marked drop from 2023 onwards.
Despite this, the report observes that overseas funds maintain higher private asset allocations and anticipates that New Zealand will follow this trend over the next few years. MIS managers currently access private assets through both direct investment and indirect structures such as limited partnerships (LPs), wholesale funds, and fund-of-funds arrangements. Each approach presents distinct advantages and challenges, particularly in relation to valuation and oversight of private assets.
Valuation issues with private assets canvassed
Private Assets provides detailed analysis of private asset valuation practices, distinguishing between direct and indirect investments.
For directly held private assets, key considerations include valuation frequency, reliance on internal or external valuers, governance oversight, and conflicts of interest. Infrequent valuations can lead to abrupt changes in unit pricing, while the absence of out-of-cycle valuation mechanisms may exacerbate this risk.
For indirectly held private assets, similar themes arise, including valuation methodologies, governance structures, and communication with investors. Additional complexity stems from the layered structure of investment vehicles and reliance on third-party valuation processes.
Although there is clear overlap between these considerations, important differences arise depending on whether private asset investments are held directly or indirectly. Many MIS managers adopt a hybrid approach, with the majority of surveyed funds holding both types of private assets. This creates the need to apply both sets of valuation considerations concurrently.
LRM dimensions for private assets
Liquidity risk management (LRM) is a central concern arising from the inherent illiquidity of private assets. The valuation issues identified in Private Assets align closely with the LRM features outlined in the FMA’s April 2024 Liquidity risk management guide (Guide).
Although Private Assets focuses on valuation issues, these issues have direct implications for LRM. In a liquidity stress event (LSE), timely and accurate valuations become critical for managing investor withdrawals and deploying liquidity management tools (LMTs) under a liquidity contingency plan (LCP).
If private asset valuations are not updated frequently, there is a risk of stale pricing, which can distort unit values during periods of stress. Where out-of-cycle valuations are not available, corrective action may be difficult, potentially undermining the effectiveness of LCPs and LMTs. This also raises challenges for MIS managers in fulfilling their obligations under sections 143 and 144 of the Financial Markets Conduct Act 2013 (FMCA), particularly the duties to act in the best interests of investors and treat them equitably.
Governance plays a critical role in addressing these liquidity and valuation risks. Private Assets recommends robust oversight by boards and investment committees, including regular reporting on valuation practices. This aligns with the Guide’s emphasis on governance and liquidity risk reporting, which highlights the importance of integrating valuation and liquidity considerations into LRM decision-making frameworks.
LCP, LMT, and liquidity stress testing (LST) considerations
The Guide outlines key considerations for LCPs, LMTs, and LST. Where private assets are included in portfolios, these LRM applications may require review and adaptation.
LCPs designed for publicly traded assets may not adequately address the characteristics of private assets. LMTs that function effectively for liquid markets may be less suitable for assets with limited or irregular trading opportunities. As a result, careful calibration is required to ensure that LCPs and LMTs remain effective across different asset classes, including private assets.
LST of managed funds should incorporate scenarios involving any private assets held, ensuring that potential interactions between liquidity constraints and valuation challenges are fully understood.
SIPO considerations
Statements of Investment Policy and Objectives (SIPOs) play a key role in defining how private assets are incorporated into managed funds. Benchmark allocations to private assets must be sufficiently meaningful to deliver benefits in terms of return and diversification, while also reflecting the associated risks.
If these allocations are too small, the benefits arising may not justify the additional risks of illiquidity, opacity, and valuation uncertainty. Conversely, higher allocations increase these risks and require careful management.
Allocation ranges specified for private assets within SIPOs also require particular attention. During an LSE, selling liquid assets to meet investor withdrawals may increase the proportion of private assets within a fund. This “range creep” can push private asset allocations toward or beyond permitted range limits, potentially resulting in limit breaks.
Addressing this problem requires careful calibration of private asset allocation ranges, balancing fund operational flexibility against clarity for investors. Wider ranges may reduce the likelihood of limit breaks but could also mislead or confuse investors and require more detailed disclosure and explanation by MIS managers. Supervisors and the FMA may scrutinise SIPO settings for private assets closely where they do not seem to reflect the underlying risks adequately.
Conclusion
“The FMA’s report Private Assets is a thought-provoking document that should be referred to by MIS managers who are investing, or at least thinking of investing, their funds into private assets,” said Matthew Band, General Manager at Trustees Executors.
“The report provides detailed analysis of the valuation issues and pitfalls that private assets can present.”
“If, as predicted by the report, managed fund allocations to private assets will rise in New Zealand within the next few years, then MIS managers, including KiwiSaver managers, will need to develop a very close understanding of the valuation aspects and potential problems of any private assets that they choose to include in their managed funds.”
“Obviously the higher the allocation of private assets in a managed fund, the higher the risk being taken due to the private assets’ illiquidity, opacity, and valuation quirks that can come with that allocation.”
“Private Assets opens up LRM issues with incorporating private assets into managed funds that also hold publicly traded assets.”
“In the event of an LSE impacting a managed fund, the MIS manager’s LCP and associated LMTs need to be able to swing into action as and when required and function as planned.”
“Bringing private assets into managed funds raises new challenges for managing LRM effectively, especially when fair and accurate valuation becomes critical for dealing equitably with withdrawal requests at a time of crisis.”
“We will be engaging with our MIS manager clients who invest their managed funds into private assets to ascertain what valuation issues and problems, if any, might arise within the context of an activated LCP.”
For comment or more information, or to be added to the free email subscriber list of “The Supervisor”, please contact Matthew Band at [email protected].