Industry super funds have moved to shave the values of their unlisted assets in response to the coronavirus-shaken market conditions, with their investment portfolios taking a hit.
IFM Investors has responded to the turbulent impacts of COVID-19 by applying an out-of-cycle revaluation to certain Australian assets in its infrastructure portfolios, resulting in their valuations being reduced by an average of 7.56 per cent.
Similarly, AustralianSuper also reported it has adjusted its values for its investment portfolios to reflect the economic and financial impacts of COVID-19, slashing its unlisted assets value by 7.5 per cent.
As a result of the value fall for unlisted assets, the fund’s balanced option saw a 2.2 per cent reduction in value on Monday.
AustralianSuper chief executive Ian Silk stated: “In the current unique circumstances, AustralianSuper has moved to revalue its unlisted assets so that members can have an up-to-date picture of their superannuation balances.”
“Assets in the AustralianSuper portfolio are held at their ‘fair value’ with regular independent valuations undertaken to maintain equity between members at all times.”
He added the valuations reflect the available information at the current time and the fund will continue to monitor the outlook and ensure it remains fair.
Independent advice group Wattle Partners recently told Investor Daily sister publication ifa that with the early release of super in response to the pandemic, the long-term performance of industry funds could face further declines after already being slugged by the falling share market.
Drew Meredith, partner of Wattle Partners reported his firm had seen a threefold increase in client enquiries since the market rout commenced, with a number being current industry fund members who were receiving limited support.
“We have already seen AustralianSuper’s balanced option fall around 25 per cent from its high, and the recent announcement that workers will be able to access their super benefits of up to $10,000 is in our view some concern for the industry funds, particularly those with a lot of members,” Mr Meredith said.
“We are somewhat concerned about their liquidity, with just 3 per cent or 5 per cent cash in many of these options and most pension payments traditionally funded through incoming contributions, which are now likely to slow.”
In November, Mr Silk and IOOF chief Renato Mota both pointed to unlisted assets as a key contributor to the 1.8 per cent annual returns boost for industry funds over their retail competitors in the past.
According to data from the Productivity Commission inquiry into the super system, retail funds have generated average annual returns of 5.4 per cent over 20 years, in contrast to industry funds producing 7.2 per cent.
Speaking to the standing committee on economics, Mr Silk described the class as “mid-risk assets”, sitting on the middle of a risk spectrum between bonds and equities.
But Mr Mota admitted his company is “hesitant” to allocate more funds to the space, saying the class and its risk need to be better clarified.
“There’s a question around a lot of the unlisted assets. Are they in fact growth? Under duress, do they behave like a growth asset or do they behave like a defensive asset?” Mr Mota said.
“There is no consistency or clarity across the industry around how they’re classified.
“One of the challenges with measuring risk is assets that aren’t valued everyday. The perception of the safety, if you like, of unlisted assets needs to be better understood.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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