Powered by MOMENTUM MEDIA
moneymanagement logo
 
 

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 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

Significant ethical issues there. If a relationship is in the process of breaking down then both parties are likely to b...

2 weeks 6 days ago

It's not licensees not putting them on, it's small businesses (that are licensed) that cannot afford to put them on. The...

3 weeks 6 days ago

So we are now underwriting criminal scams?...

7 months ago

After last month’s surprise hold, the Reserve Bank of Australia has announced its latest interest rate decision....

3 weeks 1 day ago

WT Financial’s Keith Cullen is eager for its Hubco initiative to see advice firms under its licence trade at multiples which are catching up to those UK and US financial ...

3 weeks 4 days ago

While the profession continues to see consolidation at the top, Adviser Ratings has compared the business models of Insignia and Entireti and how they are shaping the pro...

6 days 22 hours ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND