Are super funds facing coronavirus liquidity issues?

GFC rice warner andrew boal APRA travel superannuation liquidity super funds superannuation funds australian prudential regulation authority

12 March 2020
| By Mike |
image
image
expand image

In circumstances where some major travel and hospitality industry employers have already announced they are asking staff to take both paid and unpaid leave while senior executives are taking pay cuts, questions are being asked about superannuation fund liquidity.

Liquidity issues arose for superannuation funds during the global financial crisis (GFC) in 2007/08 but the impact of the coronavirus could be much more significant in circumstances where not only are superannuation funds holding illiquid assets but large numbers of members may be out of a job because of slow-downs in the travel, events and hospitality sectors but also the probability of large sporting events being postponed or deferred.

Rice Warner chief executive, Andrew Boal, said he believed that in such circumstances he believed that both superannuation fund trustees and the regulator, the Australian Prudential Regulation Authority (APRA) would be closing monitoring the situation.

He said the issues warranting monitoring would be the level of illiquid assets held by affected funds and the impact on superannuation guarantee-generated cash flows if large numbers of workers ceased making contributions.

“I imagine that APRA will be closely monitoring that situation,” Boal said.

In the immediate aftermath of the GFC APRA took a close look at superannuation fund liquidity and implemented stress testing procedures but, as recently as 2016, lamented that not all trustees had taken the issue seriously enough.

However it warned against funds overlooking liquidity stating that “stresses that affect liquidity may not necessarily impact returns (or asset values) immediately”

“…in some circumstances, liquidity may be the most potentially severe risk faced by a superannuation fund in the short run – as occurred for some funds in the global financial crisis. Poor investment performance may ultimately lead to a failure to meet investment return objectives, and can lead to reduced confidence in the fund, but may not lead to a permanent loss of capital.”

“If it has inadequate liquidity, however, a superannuation fund could be forced to sell assets during a market downturn, thus crystallising losses. Furthermore, these losses could be more severe due to the adverse market impacts that are likely to be occurring at the same time.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

1 hour ago

Interesting. Would be good to know the details of the StrategyOne deal....

4 days 6 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 2 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 4 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

3 days 4 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

2 days 7 hours ago