There has been speculation around the liquidity of funds ahead of the early super release measure being implemented, particularly concerning their allocations in illiquid and unlisted assets.
Stockspot chief executive Chris Brycki told Investor Daily sister publication ifa that more disclosure was “desperately needed” in the industry super space, with members needing access to more information around how the market downturn is impacting unlisted asset valuations.
Similarly, Senator Andrew Bragg slammed super funds who may have sunk too deep into illiquid assets ahead of the crisis, calling it a “sign of bad management and poor investment governance”.
Further talk has pointed to the average unlisted valuations as seen for other industry funds in the range of 7-15 per cent being unrealistic, particularly as equity markets have seen substantially larger falls.
But First State Super CIO Damian Graham has rejected the criticisms, saying there doesn’t need to be a “like for like” movement for both equities and unlisted assets, noting they are not affected by the same factors. He pointed to the value of shares relying on supply and demand.
“There are a few different issues there and I do think the view that because listed markets have fallen by x, the unlisted equivalent should also fall by the same amount is probably too simplistic,” Mr Graham said.
“From a transparency perspective, I think there should always be clarity around asset allocation, but also we do need to ensure that there’s the right level of information controls to ensure that there’s no impacts to members from too much information getting out to the market.
“Because we obviously want to ensure that we maintain the rigour and the discipline around assets to ensure that when we do want to transact, that information flow is managed properly.”
He told ifa sister title Investor Daily that the fund has devalued a number of its unlisted assets, going by a case-by-case basis rather than using an average amount, as seen by other industry funds. Mr Graham did not report any ballpark figures, but said the assets in agriculture and retail had felt larger impacts from the pandemic.
The default super option for First State Super members has around a 25 per cent allocation to unlisted assets, which Mr Graham reported is similar for most industry funds.
The fund is confident it has enough liquidity to withstand the release, with the industries it covers, including the health and community sectors expected to see a “muted” impact, compared to other sectors expected to be more heavily slugged by the virus as unemployment rises, such as retail and tourism.
Mr Graham commented for now, First State Super would not need government support for additional liquidity, but that could change in a scenario where the economic shocks are prolonged beyond around a year, with further impacts for unemployment, early super releases and other hardship provisions.
The fund has leaned towards an economic recovery starting to come about towards the end of 2020 in its guidance, depending on the results of public health measures.
It also reported it reviews its liquidity on a daily basis.
“We’ve had an active perspective from an investment perspective, trying to scenario plan and we undertake fairly irregular but specific crisis scenario [stress testing] to try to make sure we’re well prepared,” Mr Graham said.
“Nothing that we’ve seen so far has required any changes to our governance or our approach. We’re certainly ensuring that there’s strong visibility on the health of the portfolio and ongoing basis, that’s always been the case but we’re just reporting a little bit more regularly.”
The fund has expanded its telephone-based and online financial advice services, alongside launching new public webinar education sessions in an effort to inform members during the pandemic.
The early super raid is set to commence on 20 April.
Damian Graham is quite right. In a crisis like this unlisted assets move differently to listed assets. However, in a crisis liquidity dries up which means that liquid assets have to be marked down to sell, and illiquid, unlisted assets have to be marked down even more.
In other words, when Transurban drops by 40% then unlisted toll roads have to drop by more to compensate for the fact that there are far fewer potential buyers for unlisted toll roads than for Transurban shares.
Damian knows this as the test is quite simple – if you have invested in both and you need liquidity, which one are you currently selling? Transurban or your unlisted toll roads? Has anybody heard of any toll roads being sold even though some funds desperately need liquidity? The reason for selling Transurban instead is that unlisted toll roads have to be sold at a comparatively cheaper price right now. Perhaps that explains why Transurban suffered more than the rest of the market – there is an irony here – a tollroad operator gets punished for being available.
If the industry fund says ‘but I don’t want to sell right now’ then you may consider whether your assets are marked to market or not. If not, you are offering your members/investors to sell out at a price that is above the value of their investments. In other words, those who leave get more money than those who stay.
Isn’t that reprehensible?
The really surprising thing is that Damian Graham is able to make this statement as if it was true and there is nobody important contradicting him.
HOST PLUS is GONE. Their members are (by their own admission – Hostplus is a dedicated supporter of the hospitality, tourism, recreation and sports industries).
Their super balances are low and all these members have lost their jobs and will all take $20k out of super. The invest in Shopping Centres etc and Office Complexes which are worth half what they are valued at. GET OUT NOW WHILE YOU CAN.
Plus. If First State super are banking on a second half recovery to save them then they are in big trouble too. The government has already said it wont provide emergency liquidity to super funds. Remember its the liberal government and they dont love the ISA network like Labour do.
I wonder if the Barefoot Investor will finally have some kind of legal action filed against him for recommending Host Plus to all his semi literate readers?
The simple truth is that industry funds aggressive marketing of their performance has had a significant influence on customer decisions. For consumer protection purposes the revaluation of unlisted assets should not be at the whim of the industry funds as it will enable them to manipulate performance and also provide arbitrage opportunities for fund members to exploit to the detriment of other fund members. Regulations need to be imposed on the timing and independence of these revaluations. Performance comparisons should also be regulated to ensure appropriate risk /return comparisons are being made as the current super rating agencies have been negligent in failing to ensure apples are being compared with apples and have been complicit in this misleading advertising.
Two words….DAMAGE CONTROL.
‘ensure that there’s no impacts to members from too much information getting out to the market….. to ensure that when we do want to transact, that information flow is managed properly’ WTF??? Is First State super operating from China or North Korea? This is Australia dip-shits. Fully disclose and publish the truth or resign because there is no place in the financial services sector for that attitude. I hope APRA and ASIC are closely monitoring the situation, or are they too conflicted by their blind love of industry funds? Q
Damian Graham obviously would say that to ensure he remains in his excessively well paid job, regardless of any detriment to their members. ISA PR dept is in full swing trying to mitigate this situation and praying for a recovery sooner than later, especially prior to the billions in outflows from members wanting early access.
Contrary to the barefoot idiot, my general advice is if you’re a memeber of Pape’s favourite fund, or any ISA fund that has artificially upheld the valuations still, exit 100% and roll-over to somewhere with full daily pricing transparency. Getting out of an overly high priced asset and into a lower priced asset that has a lot higher potential recovery returns ahead of it will enhance your overall position…
Dear Mr or Mrs Mouse. Always good to know your enemy. Scott Pape (Barefoot) hasn’t recommended the very expensive HostPlus default fund but another HostPlus fund that is very cheap, perfectly liquid (until it isn’t) that looks great but has massive counterparty risk. In other words, the (few?) Barefoot clients who did exactly what he said are still feeling smug but the (many?) who just saw the words ‘HostPlus’ in Barefoot’s book and went into the default fund are getting …. in multiple ways – HostPlus has very high fees, and now has to sell down at a really bad time to have enough liquidity, and is letting people cash out at what could well be inflated valuations at the expense of their existing members.
I am not sure all those young, poorly earning people who are members deserve to be … quite so comprehensively.
This is a big part of the problem with “general” advice. It relies on the recipient understanding it well enough to adapt to their own specific circumstances. But most consumers cannot do that. They only absorb 10-20% of the info, then misinterpret it as a specific recommendation suited to their situation. Hence all the Barefoot followers who piled into the HostPlus default fund rather than the index fund, with many also losing their insurances along the way.
General advice needs to be banned. It has a high likelihood of consumer harm. Barefoot being a classic illustration of the problem.
Wait for all the insurance complaints too…. I have seen a number of people who switched to HP and took out insurance with them when it was clear they would either not be covered or have an exclusion, but gave up their previous cover which they were covered under. Have others seen the same?
ASIC should be crucified for supporting this idiot. General Advice is a killer.
I’ve seen plenty of people who lost auto accepted insurance when switching from their employer default fund, and ended up with exclusions/loadings/declines elsewhere. Any adviser who gave personal advice leading to that sort of loss in benefits would be crucified by ASIC. Yet Barefoot and union fund call centres do it on an industrial scale via “general advice”, with ASIC’s wholehearted endorsement.