While the turnaround in world equity markets has granted super fund members a welcome reprieve, but the bad news is many super funds will likely lag the recovery for some time. In March, the average balanced fund (invested 60% to 76% in growth assets such as shares and property) moved back into the black with a return of just over 2%, according to researcher

SuperRatings. But world sharemarkets were up more than 8% over the month. The lag, in this case is partly because balanced funds invest around 30% of their money in asset classes such as cash and fixed interest, but this does not explain the total of the  underperformance.

According to SuperRatings there are 2 reasons behind the balance of the underperformance by superfunds. First, the strong Australian dollar has taken the gloss off international sharemarket returns. Research group Chant West says hedged international shares (ones not affected by currency movements) rose 6.3% in March, but unhedged funds in the same sector lost 1.4% because of exhange rate fuctuations. Second, many of the not-for-profit super funds, including the big industry funds, have substantial holdings of unlisted assets such as direct property investments, infrastructure, private equity and hedge funds. Because these assets are not traded daily in a public sphere such as the stock exchange, they tend to react more slowly to changing market conditions. But they must eventually react, and negative revaluations of these assets are just starting to hit super fund returns.

Chant West found that in March, Australian unlisted property investments fell by 2.7%, bringing the average loss on these investments to 6.6% over the past year. That looks pretty good compared to an annual loss of 50.2% for listed property investments, but the big concern is that the performance gap between the two sectors will narrow. After all, we're talking about the same type of underlying investment. The only difference is how it's bought and sold. And it seems unlikely listed investments will double in value any time soon.

The grim prospect for unlisted investments has prompted some investment advisers to recommend their clients switch from the balanced or growth options of industry funds to cash or listed investment options. Their argument is that the longer valuation process for unlisted investments has left units in the balanced and growth options overvalued and investors should switch before the losses come. The whole issue has raised sufficient concerns that the Australian Prudential Regulation Authority has now written to fund trustees setting out its expectations on how unlisted assets should be valued. APRA's concern is that lax valuation processes can lead to some fund members being treated unfairly.

Most funds value their units daily for the purposes of determining what members should be paid (or pay) if they are transacting on their account. Taking listed assets into account for daily pricing is a simple matter of using that day's closing prices. But it would be unreasonable - not to mention prohibitively expensive - to expect funds to get a daily valuation for their unlisted assets.Typically, these are valued on a rolling basis where each asset is revalued every year or two, but that means at any point in time some valuations are out of date. So the unit prices investors are paying, or getting, may not reflect the fund's true value.

If the sharemarket continues to rebound, it may prove only a minor influence on funds that have a high weighting to unlisted assets that are up for revaluation.Funds with unlisted assets need to be a lot more open about their revaluation policies. If they are good investments, it's probably true that they will prove less volatile than listed investments and deliver a superior long term return. But almost inevitably, there will also be funds holding assets that are in the books at inflated prices. If they want to maintain their credibility, funds need to write those assets down.

A simple way to improve the the performance of your super immediately, with no additional risk, is to reduce your administration fees. The process for acheiving this is both quick and simple, see here.