Hostplus’ balanced fund has a zero per cent strategic asset allocation to cash.

The fund has 1.1 million members. Many of them are young, with nearly 25 per cent below the age of 25 and only 13 per cent above the age of 50, so you can understand how allocating a third of the portfolio to property, infrastructure and private equity might have felt like a safe move. Well, guess what? Politicians have moved the goal posts, and the public is already alert.

We all have friends and family that have been impacted by the layoffs in the hospitality industry. It is one of the worst hit industries by the economic crisis triggered by the coronavirus, with hundreds of thousands of people losing their jobs and thousands potentially losing their businesses.

How can super funds be a safehaven for people right now?

The average member account balance for Hostplus is $37,000. If the average member takes up the government’s offer and withdraws the $20,000 over the next two years, the implications are massive. Think about the lost potential compounded savings for the member – Industry Super Australia says for a 20-year old it would mean at least $120,000 lost super in retirement. Think of the loss in member flows coming in the door, the lost future returns, the loss of the potential job creation and nation building of these assets. And, wakeup industry, think about the loss of jobs for you.

Hostplus has $53 billion in assets. Of its most liquid part of the portfolio, 22 per cent is allocated to Australian shares, 22 per cent to international shares and 8 per cent is invested in the emerging markets. Is it going to sell at the bottom of the market? Perhaps sell private equity on the secondary market? Either way, it doesn’t look good for members.

But let’s not pick on Hostplus alone.

REST has more than 2 million members. Their average balance is even worse – $27,000 – and only 13 per cent of their members are over the age of 50.

Are all the young retail workers in Australia who have lost their jobs going to withdraw $20,000 from their super? If they did, it would devastate the fund and it would devastate the future savings for a lot of Australians. It would probably devastate the industry, too.

This liquidity crisis will need to be resolved. It will have serious implications for the long-term viability of the superannuation system.

We all agree that imperilling the funds and insinuating that the trusts they manage can be raided for any reason that the government sees fit is no way to build confidence in the system. But we also need leadership from within the superannuation system too.

Trustees and staff of super funds have been entrusted with something big – the future savings of Australia’s people. So what do we now? We want to hear.

 

An earlier version of this article inferred questions regarding the leadership of Hostplus and REST with respective to their asset allocations and liquidity requirements for their member cohort. The previous title “Where is the leadership?” was intended to question the political framework and consultation with super funds in ensuring the best outcomes for members at the difficult and uncertain time.

 

5 comments on “Understanding the system: where’s the leadership?”
  1. We need the industry funds to stop bashing advisers for providing personal advice , and use it as a lever to steer Australians in to a no advice situation where it attracts in flow to there investment options. The pooling of members creates a significant liquidity risk in the exit phase and when outflows exceed inflows, what is a natural expectation to have post retirement of the majority of members. The fact industry funds has so many low balances shows this strategy has worked, with the only accumulation amount consisting for many as a result of employer contributions. Any chance for many of these to take the balance out will be accepted by the non advised client. I find it hypocritical for such funds to now complain the actions of its un advised members

  2. Good summary Colin. Using averages, both age and balanced, as quoted by Hostplus, conceals the real position, the actual distribution by age and balance. With such low averages, there will be many members in these two funds who could withdraw 100% of their balance as they would be below $20,000.
    It also highlights the folly of having 50% in unlisted assets and 93% in growth assets in the Balanced Fund.
    It reflects the narrow experience of some managements who only have experience of bull markets and of only one business.
    Interesting year ahead.

  3. Avatar Peter Horsfield

    In the face of this and as recent as 17th Feb 2020.

    The investment chief said Hostplus was upping its equities holdings into the market rout because stocks would eventually recover. With interest rates at historic lows, he added that investing in bonds or cash was unwise and would likely lead to long-term wealth destruction. He also said dips, troughs or peaks in the market were not going matter over a long-term horizon.

  4. Avatar Jack Diamond

    Super funds could be in the worst perfect storm : low valuations on Investments, stresses and out of work members, who might seek the $20,000 redemptions out of lower balances already, (if things don’t get better quickly) ,employers dislocated from economic activity and maybe not contributing to super and to top it off some Super Funds not that well prepared for their staff to work from home , could be serious targets of a Cyber attack.

    The end result could be huge immediate consolidation and merger of super funds or the creation of one or a few super funds .
    Should significant negative cash flow be experienced medium term across a large number of super funds, a single national fund maybe a solution to solvency.

  5. Avatar Jack Diamond

    Super funds could be in the worst perfect storm : low valuations on Investments, stresses and out of work members, who might seek the $20,000 redemptions out of lower balances already, (if things don’t get better quickly) ,employers dislocated from economic activity and maybe not contributing to super and to top it off some Super Funds not that well prepared for their staff to work from home , could be serious targets of a Cyber attack.

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