UniSuper’s investment chief John Pearce said liquidity in the fund was stable even after the market downturn – triggered by the coronavirus outbreak – had prompted members to switch $2 billion collectively of their assets into mainly cash and other defensive assets.

Pearce said the balanced portfolio, where the bulk of the fund’s members assets are invested, was down about 13 per cent for the financial year through to March 20, erasing one and a quarter years of returns. He said the portfolio’s low 7 per cent allocation to unlisted assets and a “conservative approach” to liquidity had held the fund “in good stead.

“We’re using our cash to buy the shares that members are selling,” he said in an update to members. “The strength of our liquidity position is such that we plan to continue the strategy for the foreseeable future. When we conduct our stress testing, we assume a scenario where the worst three months of the global financial happens in a single day.”

The Australian equity market has tumbled more than 36 per cent since the peak in March in line with a global sell-off that has erased trillions of dollars from financial markets as investor concerns mounted that the global economy is headed for a deep and long-lasting recession. The sell-off prompted Pearce to last week suspend  the $85 billion superannuation fund’s stock lending program and call on his industry peers to do the same.

“The speed at which the markets have capitulated is actually faster than the global financial crisis  and comparable to the crashes of 1987 and 1929,” the CIO said. “There is now no doubt that the longest global economic expansion on record will end this quarter. The only debate is around the depth and duration of the 2020 recession.”

Pearce said while the balanced fund had lost more than 12 months of returns, in the nine financial years leading up to 2020, the average return for the balanced fund was 9.7 per cent per annum. He added that while UniSuper’s defined benefits division had taken a hit from the market slump, it was still in surplus.

The division’s Vested Benefits Index (VBI) and the Accrued Benefits Index (ABI), two key measures of financial health, are around 107 and 116 respectively. While the CIO couldn’t rule out the VBI falling below 100, he assured members that it will not automatically trigger any automatic response in terms of benefits.

“The impact of further falls in the share market will be mitigated to a reasonable degree by portfolio protection strategies, or put option options, that we put in place at cheap prices when the market was trading at much higher levels,” he said.

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