Illiquidity a super issue

Big Queensland institution QIC has produced a research paper which claims current market conditions have created serious liquidity issues for superannuation funds, with some being forced to sell assets at deflated prices to fund ongoing cash requirements.

QIC managing director, capital markets, Troy Rieck said recent market events had illustrated the potential effects for funds not adequately planning for liquidity and risk management issues.

“Funds are facing increasing liquidity issues caused by a range of factors including increased member movement into defensive investment strategy options and the need for funds to maintain hedging positions,” he said.

“The volatility of equity markets has seen members move from default growth investment options to more defensive investment options,” Rieck said. “These member switches require the availability of cash, posing liquidity issues in times of extreme market movement.”

He said unlisted assets such as infrastructure also impacted on liquidity.

“Not only are they illiquid by nature, but irregular asset valuation models have the potential to impact on a fund’s position,” Rieck said.

He said many alternative assets required an initial investment and a commitment to make further investments,” he said. “These calls might cause issues for superannuation funds if they occurred in times of market illiquidity.”