Superannuation funds in Australia have had their net positive cash inflow underwritten for so long by the Superannuation Guarantee they have become incautious about liquidity issues, according to a paper developed by the Russell Investment Group.
The paper, looking at alternative asset allocations, warns this situation is changing and that superannuation funds will soon have to take a closer look at liquidity, particularly where alternative asset classes are concerned.
“While illiquidity can undermine even mainstream asset classes on occasion, it is a fact of life in alternative asset classes such as unlisted property, hedge funds and private equity,” the Russell paper said.
It said this should not necessarily discourage investors from investing portions of their portfolios in these sorts of assets because, in some cases, there was an illiquidity premium to be earned by the patient long-term investor.
However, it said investors should have a good understanding of the potential liquidity needs arising from their liabilities and the implications of extreme conditions on the liquidity of their portfolio.
