Stockspot chief executive Chris Brycki told ifa more disclosure was “urgently needed” in the industry super space so that fund members could make informed decisions about how their fund would fare in the wake of an extreme liquidity event like the evolving COVID-19 crisis.
“The level of secrecy and non-disclosure by public funds has always been unacceptable, but it has taken the current crisis to expose it,” Mr Brycki said.
“Whilst it is unrealistic to demand a daily revaluation of unlisted investment, the basis for their valuation should be disclosed, including any discount caused by factors causing illiquidity in that investment.
“Investors and their financial advisers will then be aware of the impact of significant market movements on these valuations.”
On Tuesday, Mr Brycki tweeted changes that had been made to the PDS of hospitality industry fund Hostplus between this week and last week, with section 5.17 of the statement that referred to switches between investment options being processed “on every national business day” being replaced with a new section that allowed the trustee to “suspend or restrict applications, redemptions and withdrawal requests”.
Research compiled by Mr Brycki last month showed Hostplus had a 38 per cent allocation to unlisted assets in its balanced fund, and an equities portfolio worth an estimated $16 billion, factoring in average market declines since the fund’s January equities portfolio valuations were disclosed.
With the majority of its 1.2 million members facing unemployment, Mr Brycki said it was likely listed holdings in the fund would be insufficient to meet maximum member redemptions of $20,000 each under the government’s early access scheme for those affected by COVID-19.
Further research released by Stockspot yesterday showed retail industry fund REST was likely to be in the same boat, with a 47 per cent allocation to unlisted assets in the fund’s Core strategy, 40 per cent allocated to shares and 13 per cent to bonds and cash. With retail workers also at risk of unemployment and the fund having reported $22 billion worth of shares in its portfolio at 29 February, this could also prove insufficient to fund member redemptions, Mr Brycki said.
Mr Brycki said it was “hard to know” the extent of liquidity issues for funds such as Hostplus at this stage, but warned at best the high allocations to unlisted assets could create unfair outcomes for members.
“If the unlisted investments have not been properly valued, members who transfer into cash or redeem their units at the current price potentially do so at the wrong value,” he said.
“The remaining members pay for this as well as suffering their own losses when the unlisted assets are finally revalued down or sold.”
He added that while it was “too early to know” if the crisis would put a longer-term dent in the positive reputation of industry funds, “perceptions around illiquid unlisted assets are likely to change dramatically”.
[quote=Anon]So having a mix of index funds (and some cash) that cover bonds, property, aus and international shares is not diversified enough? I really don’t think many adviser that are tied to the retail providers know what is actually available through some of the industry funds.[/quote][quote=Anon]So having a mix of index funds (and some cash) that cover bonds, property, aus and international shares is not diversified enough? I really don’t think many adviser that are tied to the retail providers know what is actually available through some of the industry funds.[/quote]
Listed property is correlated almost identically with the ASX200. Government bonds in negatively correlated to interest rates (now at record lows of 0.25%).
I use industry funds, but we have done our due diligence on the two that we use and we know that their liquidity and investment structure is sound. It might not be as cheap as throwing a heap of money at the index, but it is diversified. yes, it has unlised property but not to the levels being reported to HostPlus.
Throwing all your clients into index funds might look good for compliance as it will come in cheaper, but will the diversification help it when the indexes crash?
Brycki is not quite correct in stating the majority of HostPlus members are likely to be unemployed. While HostPlus sourced most of it members in the past from the hospitality industry, many of its newer members were delivered to them via the Svengali like pronouncements of the Barefooted one.
The gullible Barefoot followers may not lose their jobs, but they will almost certainly have the value of their super diluted by massive payouts to other members from overvalued unlisted assets. Let’s hope they all go screaming to AFCA, ASIC, and the outrage media (ABC/Fairfax) about the dodgy advice they received.
the barefoot followers will be in balanced index (if they understood his advice correctly). Are you suggesting Hostplus will rape and pillage the index option to prop up the balanced option?
This situation is beyond sad but unfortunately it is only the tip of an extremely large iceberg. These super funds are not the only ones who need to be disclosing and not just about illiquid assets. The elephant in the room is the amount of debt in the world and blind Freddy can see we are heading into a depression that WILL make 1929 look like a breeze. This [b]debt crash[/b][b][/b] was always going to happen as absolutely nothing was learned or fixed after 2008 – it has only snowballed and the virus is only the pin that has pricked the bubble – ‘something’ was always going to do so. The world authorities have more control right now than ever so they will not relinquish that easily or soon. The virus, for a number of reasons, is not going away soon and govts won’t release the lockdown until 100% proof it is gone and/or controlled by vaccine. 50%++ unemployment and 50% drop in property values and stock market and bonds does NOT a recovery make. God help everything when the derivative contracts start to fall apart. Did you see the movie called ‘2012’? That’s the idea. No, we are in for the mother of all economic crashes, Joe average at home without jobs, in our lounge rooms – it simply cannot be any other way this plays out. There is just TOO MUCH DEBT, PERIOD. Liquidity of super funds is important but I fear will pale into insignificance once this depression gets legs, which will be by the end of this year. Forget Bitcoin . . . Got [b]cash[/b][b][/b]? Got [b]gold[/b][b][/b]?
you’re an idiot!
So Governments around the world are going to stand by and watch the whole world economy implode? I doubt it. They will do the best to halt the virus for a period of time. If successful, great. If not, the old and vulnerable will be isolated so the rest of us can get on with things. While you are selling, my clients and I will be buying. Best of luck. PS. I hope you are not a financial adviser
oh god really? There is $150B sitting in the future fund…
Bitter sweet? This was always going to happen. In time things catch up and its the industry funds time to be under scrutiny…
Barefoot needs to be sued.
Industry Funds need to be sued.
Shitty Intra-fund advice needs to be stopped.
Advisers should be championed for calling this out for years.
Since 1st Jan 2020 and the enshrining in law of FASEA Code of Ethic’s
What are industry funds to do now?
I need to access my super because I am facing financial hardship…
They will need to show how you have met at a minimum Standards 1,2,3,5,6,9,11&12
the following is an interesting strategy i’m hearing….”I’m taking them to AFCA. They mislead me. I thought it was “balanced” so i switched to cash and I want to be compensated. Besides in large writing the funds still promotes the fund costs $1.50 per week to run.” Lies, deception, misleading behaviour. We simply can’t have that in the super system that needs honesty and transparency. Simply stating a fund costs $1.50 per week to run and is “balanced” with 0% cash is “no longer in line with community expectations”.
How long until we get the inevitable Anonymous post telling everyone their attitude is disappointing and we misunderstand the nature of their assets? Anyone advising clients on these funds cannot possibly be acting in their client’s best interests unless they tell them to switch to the cash fund. The risk light is flashing like crazy if you sit in their unlisted stuff now.
I am more than happy recommending clients invest in industry funds, but usually do a little bit more than just put them in the balanced fund (because of the asset mix rather than the unlisted assets). The reason I do this is they consistently beat nearly every retail fund – this is in the clients best interest.
I trust you were jumping up and down about the managed funds that were frozen during the GFC….nah didn’t think so.
So you recommend industry funds but not the balanced funds, you do a little bit more? Little bit more of what? What are you comparing as you are not supposed to compare on return only, you use that for a basis for a switch or a hold recommendation? Good luck with that. In terms of frozen funds, yes there were some, however it wasnt the whole superfund itself that limited withdrawals this is totally different. When the clients start complaining to you as they cant get thier money in a month or so, you can tell them about the outperformance, they will be maclovin that !
Do you even know what some industry funds do or have you just drank the cool-aid of from the anti-industry fund bubbler?
I didn’t realise I had to go into precise details about how I use industry funds. But as you are asking, the one that I mostly use has individual index funds among their investment options (Vangaurd ones, not the IFM pretend ones). This allows me to tailor the asset classes for each indivdual to bring it in line with the Lonsec model portfolios that we use. All for total fees (including admin and investment) of less than 0.5%. Have looked at various retail funds and I cannot get the same investment for better than this. As I work in my clients best interest, I recommend the best product that is also the cheapest. How many AMP or bank adviser can honestly say the same?
Understand we are in unlisted asset bashing mode here, but I think most would agree that having some exposure to them is important. All you are doing this is providing no diversificatin (100% index – 100% exposure to the share market) and selling it as good advice because the fees are low. Is that really in the clients best interest? Are they safe by achieving different returns at different times? A lot would argue they are not.
So having a mix of index funds (and some cash) that cover bonds, property, aus and international shares is not diversified enough? I really don’t think many adviser that are tied to the retail providers know what is actually available through some of the industry funds.
I have no unlisted assets at all. I believe they should carry a much larger liquidity discount than they do. For the majority of the cycle I am wrong but the opportunity cost is so tiny its irrelevant. Right now I am spectacularly right and my clients are way ahead for it. Unlisted assets dont carry any magic dust that listed assets dont.
I find it mildly amusing that Frydenberg and Morrison stumbled across the ultimate industry fund killer. A seemingly innocuous $10K withdrawal x 2, for workers who lost their jobs, which was no doubt recommended by the lefy-ridden, industry fund loving and financial adviser hating Treasury. What an own-goal that was. Now the Coalition have woken up to the devastating impact this will have on industry funds, there aint no way they will back away from it nor allow the RBA to bail them out. After this trainwreck is over, get ready for RC2. The Coalition are getting the gimp suits ready as we speak.
Sounds accurate. Treasury have no clue. I read many of the Treasury submissions to the RC – the submissions could have been cut and copied form Industry Super and ASIC – and they clearly have no idea that Industry Super have Investment issues until now. Home goal for sure.
When is this industry going to grow up and stop trying to bring competitors down? Instead of doing a report on why not to invest in Rest or Hostplus, why doesn’t Chris spend that time on making their offering more competitive.
The potential problem with Industry funds is not about their use of unlisted assets. It is more about the fact their members are concentrated in some of the hardest hit industries. Any fund, regardless of whether they are industry funds or not that were in the same boat would also be up against it.
List the unlisted assets Anon and the liquidity problem is solved – but Industry Super would not then be able to hide the source of their high returns. It is squarely an issue of their investment strategy.
No it isn’t. The source of their high returns is not that they have unlisted assets, it is that they (IMO) incorrectly classify alot of these as conservative when they should be growth. They are two very different arguments.
They have done an MTAA super from 2008. Both are overweight in unlisted assets and class some of those as defensive. Here is a pro tip – defensive assets are cash and fixed interest. Nothing else.
I agree 100%. But it is not that they are unlisted, it is how they classify them.
Ha! I’m laughing so hard I’m crying. After 5 years of advertisements going hard at their competitors industry funds are now crying foul over criticism of their massive stuff up and begging for government relief. You reap what you sow buddy.
So now that industry funds are in trouble we should all just get along, is that it? Maybe if they hadn’t spent the last 5 years attacking financial advisers just so they could push more low paid Australians into the smoke and mirrors liquidity traps they call products it would be possible. For now though I’m just going to enjoy their tears as they beg the government to save them.
Hopefully ASIC and APRA will Act now on what they have both been turninga blind eye to.
THis is actually wose than the banks actions, because at tleast the banks were open about what they were doing.
The industry funds have been blantantly lieing to everyone, and sitting in their offices very smug with their behaviour. However this behaviour is completely unethical and compromised, and they always knew it.
Where are all the industry fund spruikers now. Mr white where are you hiding now wit hyour comnpare the pair arrogance.
If ASIC and APRA don’t do anything and crudcify the Turstees on these industry funds, then ASIC and APRA need t obe disbanded as useless, then the government needs to come down very hard on the industry funds.
Time for a new ‘compare the compare’ marketing campaign, retail versus industry funds?
There is no ability for a trustee of any fnnd to limit a SIS Regulation or directive from the ATO in terms of releasing the $10,000 super. But first in best dressed before the valuations tank. Any attempt to deny a redemption raises a legal action under section section 55 and 218 of the SIS Act and also an action in AFCA.
So why didn’t Hayne address this in the Royal Commission?
because he was an old useless douche bag
Given the demands placed on advisers to act professionally it is pathetic that ASIC has allowed industry funds to market performance without disclosing the additional risks, there is no agreed standard asset allocation for the balanced fund category and hot spot performance to evaluate funds for default super mandates do not consider risk adjusted returns. Chant West and Super Ratings have also failed to address these issues which brings into question their own levels of professionalism.
Calling ASIC!! Are you awake and listening now???
This is what we all have been warning you inept arrogant imbeciles about for at least a decade.
Wilson/Hume – please release the dogs of wrath onto both industry super and ASIC
…and with that news he grabbed his shoes thinking that no one would recognise him and he headed for the hills…
I bet their is one person who does not wear shoes that recommended Hostplus is nervous at the moment.Low fees ,high returns always a good formula for recommending a product.Hows the ASIC top ten funds going!.
Slater & Gordon class action anyone? He’d be worth a bit by now (or do they only go after banks and retail funds?)
Idiotologically, I doubt Slater and Gordon will go after their comrades in the Industry Funds!
These numbers are shocking. Good on Stockspot’s Chris Brycki making this public. How come Chant West is not doing this?
Chant West is as compromised as Choice magazine is why.
Interesting he quotes numbers but omits the fact that a large portion of those unlisted assets are actually funds run by IFM or similar that in turn invest in listed assets. Too much BS in this industry.
I hear that Zenith is trying to back out of their yet to be concluded acquisition of Chant West. Perhaps they anticipate a lot of backlash, as people gradually realise Chant West has been acting as a conflicted marketing agency for union funds rather than a genuine independent researcher. I suspect Lonsec is getting a bit panicky about their SuperRatings acquisition for similar reasons.