The deputy executive director at MTAA Super, Leanne Turner, has decried as “nonsense” suggestions that funds with large holdings in alternatives are overvalued. Listed markets continued their dismal performance up to December 31, with Australian shares down 38.9 per cent and Australian listed property down 55.3 per cent, while unlisted property lost just 0.3 per cent for the year. Asset allocation was more important than ever before in 2008; super funds heavily weighted to listed markets underperformed funds with big unlisted books by nearly 15 per cent.
MTAA Super’s Growth option lost 11 per cent in 2008, way ahead of the median high-growth fund (defined as one with 81-100 per cent growth assets) which lost 26.5 per cent.
Much of this outperformance has been attributed to MTAA Super’s high allocation to alternative, unlisted assets. Under the guidance of its asset consultant, Access Capital Advisors, MTAA Super has split its fund into two distinct pools: the enhanced index, ‘market-linked’ portfolio; and the ‘target return’ portfolio.
The target return portfolio, which accounts for 48 per cent of the fund, invests in airports, tollways, ports, power stations, timber, power generators, private equity and property. MTAA Super said the valuation frequency of this portfolio was a trade off between ensuring member equity, without placing undue costs on members.
Assets such as high yield debt were valued most frequently (about 12 times per year), while natural resources and property were valued only about twice a year. The frequency also depended on the size of the asset, for example if an asset with a market value of $100 million was revalued four times a year, an asset with a market value of $10 million would be revalued only twice a year. The average weighted frequency of revaluation across the entire portfolio is about 3.3 times per year.
“Our unlisted assets are constantly being revalued,” Turner said. “The criticism that funds with a large allocation to unlisted assets are in for huge writedowns is just nonsense.”
But Chant West principal Warren Chant said that such valuations had probably been optimistic in the assumptions they were making. “You can’t have listed assets falling 50 per cent while unlisted barely fall at all. It’s beginning to happen already, for the month of December, unlisted property lost 4 per cent,” he said. “As the financial crisis hits the real economy, we think it is realistic that the value in unlisted property and private equity could drop by 20 per cent.”