Hostplus chief executive David Elia said the $50 billion fund had largely stopped deploying cash until the full impact of the government’s early provisions release scheme was known.
The fund revealed at the start of the month that it had boosted its total fund cash holdings to $6 billion, or 13.4 per cent of the portfolio. That’s up from about $2.04 billion, or 4.2 per cent, according to the latest holdings disclosures published on the website.
“By and large we have stopped deploying cash in any other areas until such times as we know the impact from the government’s early release scheme,” Elia said in an interview with Investment Magazine. “Cash is king at the moment.”
While Elia declined to comment on how Hostplus raised the extra $4 billion or provide data on how much of the fund’s members had switched their assets into the cash option, the CEO said that the “vast majority” of the money was now sitting in their default options including the balanced fund, which holds 80 per cent of all member assets and is expected to see the largest redemptions from the early release provision.
As of February 29, the $39 billion balanced option had allocated just $702 million in cash, or 1.8 per cent of the portfolio, with the rest largely sitting in equities (around 57 per cent) and unlisted holdings (around 40 per cent) which Hostplus has since devalued between 7.5 to 15 per cent, depending on the asset.
“We’ve got more than enough liquidity to cover the most extreme issue,” Elia said. “As with all funds, it’s a cash management issue. You don’t want to have to sell anything to meet member demands if you don’t have to. We have significant cash on hand.”
Even so, the government’s new policy measure which allows struggling Australians from the outbreak of the coronavirus to tap up to $20,000 of their super early was said to have blindsided the superannuation industry and added further pressure on already stretched liquidity buffers.
It was also the reason why other funds across the industry have looked to sell some assets in the last few weeks of March to prepare for the expected surge in hardship claims. Elia said he expects the vast majority of his members’ claims to come in the first instalment, without elaborating.
“You can do as much modelling as you like but how do you model fear and panic amongst your members?” he said.
The CEO did, however, say that in percentage terms, member switching was broadly comparable to that of the global financial crisis. He also said that the fund was still receiving contribution flows from members, despite the wave of unemployment to hit the hospitality sector from government restrictions on social gatherings.
Elia said that the fund’s 1 million-plus membership base was also more diverse than its hospitality and tourism origins would suggest. This, he said, includes 300,000 members in their public offer divisions who are employed outside the sector and would likely have higher average account balances.
When queried about recent changes made to the fund’s product disclosure statement, which includes a clause that allows the fund “suspend or restrict applications, switches, redemption and withdrawal requests” Elia referred to a media statement. In the press release, the fund said that the update to the PDS were due to “governing rules and discretions as these relate to investment pricing and transactions”.
As for the fund’s next steps, Elia said while they’ve largely stopped deploying cash, they were still investing at the fringes — “If you have an active and dynamic asset allocation and you have a conviction about a particular sector you will seek to deploy,” he said. “But everyone is hoarding a disproportionate level of cash than they would ordinarily.”