Concerned that the market decline could severely restrict institutions’ access to liquidity, the Australian Prudential Regulatory Authority (APRA) has asked superannuation funds for plans detailing how they would cope with a confronting range of scenarios – including total liquidation.

I&T News understands that the prudential regulator has asked super funds to explain how they would access liquidity under extreme circumstances, such as mass member switching or further market meltdown, which would require them to partially or fully liquidate assets.

It is understood that APRA asked at least one industry fund chief executive officer to supply a plan for full liquidation of the fund they oversaw, and that some discussions also nominated larger super funds as candidates to take over smaller funds that had become unviable as a result of liquidity stress.    

APRA would not provide details of the activities, which are understood to have been carried out in recent weeks, other than it had been “closely examining the liquidity of funds it supervises”.

“While liquidity stress-testing could be enhanced in some cases, initial findings are that, in general, funds are alert to liquidity risks and are dealing with current market stresses proportionately,” the regulator said in a statement.

APRA made its concerns about liquidity management clear at the 2007 Conference of Major Super Funds, when Ramani Venkatramani, APRA general manager, central region, said that super funds’ liquidity obligations would increase as baby boomers retire, because members aged 50 or older accounted for approximately 55 per cent of vested assets. Market volatility and illiquid investment programs were also put forward as areas of concern.

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