The financial crisis has provided QIC’s new risk management structure with a baptism of fire. At any point, the manager can summon $10 billion in cash to invest or meet an urgent obligation. (“It just rolls off the tongue, doesn’t it?” Rieck says gloatingly, referring to the size of the cashpile.) But if equity markets fell another 50 per cent, life would become hideous for the manager. “But, until we run out of every dollar, the fund is liquid,” Rieck says. “It’s been 12 to 18 months of hell and hard work.

We don’t know what’s coming next, but we want the widest set of options available to fund for whatever comes down the pipeline.” Even with expansive scenario analyses, few institutions anticipated the extent of the decline in equity markets and the precipitous fall of the Australian dollar. Illustrating this, AMP Capital Investors’ $1 billion global bond fund was forced to liquidate up to 30 per cent of its assets to meet an escalating currency hedge, it is understood.

Funds with large hedging programs for international listed and unlisted investments may not have been fully aware of the implications for their offshore portfolios if the currency sharply devalued, says Ray King, founder of Sovereign Investment Research. “They were let down by traditional consultants in that area,” he says. Another impending risk is the demographic compositions of funds with large numbers of members nearing retirement. There is a continuing tendency among Australians to take a large proportion of their benefit as a lump sum upon retirement.

In 2006, 67 per cent of benefit payments across the industry were lump sums, figures from Mercer Investment Consulting show. Also, due to the taxation of benefits passed on to non-dependents upon the death of a retiree, members may feel compelled to take their money out while they are alive, and expect their accounts to be available upon request. And if retirees continue to pull the bulk of their assets from super funds relatively quickly, institutions that have experienced steady asset growth and membership over the years may face slowing growth or even some downturn during the next 10 to 20 years as the number of retirees increases, Mercer finds.

The pressure to keep the majority of larger accounts continuously liquid should increase as

Australia’s population continues to grey. According to the Australian Bureau of Statistics, the number of people in