SuperRating's Kirby Rappell

SuperRatings, the Lonsec-owned superannuation fund researcher, has prioritised conversations with 15 funds that are most likely to be impacted by liquidity concerns from the government’s new crisis measures that allow financially-strapped Australians to withdraw up to $20,000 of their super early.

While it is not clear whether these conversations will result in changes from existing ratings to either ‘watch’, ‘alert’, ‘downgrade’ or ‘hold’, decisions will be made within the next fortnight, Kirby Rappell, SuperRatings executive director said in an interview with sister publication Professional Planner.

Rappell declined to name the 15 funds on the list, but he noted that they all shared three common attributes: members with lower average account balances, funds with a greater focus on young members and a reasonably high allocation to illiquid assets.

Rappell said on average it was not unusual for funds to have an allocation of up to 30 per cent to illiquid assets. He also noted that most funds had generally been quick to ensure they have appropriate cash levels to address any liquidity concerns and were in close and regular discussions with their asset consultants.

If SuperRatings does change its view on some of these funds, it would likely result in swift action by researchers and investment committees at the licensee, platform and advice practice levels, as many of the participants among the so-called ‘wholesale’ research community rely on the company to inform their approved product lists (APLs) and other platform recommended lists.

Top 10 advice network Centrepoint Alliance is one group that uses SuperRatings’ recommendations to determine which funds it includes on its APLs, head of research Miriam Herald said recently. More broadly, subscriptions to iRate, the ratings service that the advice industry use to access SuperRatings views, has grown exponentially since it launched in the last two years, as demand from advisers to offer the relatively well-performing industry funds to clients has grown, Rappell said.

Despite this, liquidity or an assessment of unlisted assets is not mentioned in SuperRatings’ top-line assessment criteria.

The researcher bases its ratings on seven categories including investment which accounts for 25 per cent of the overall assessment. Other categories include fees & charges (weighted at 15 per cent), administration (10 per cent), member servicing (15 per cent), governance (10 per cent), insurance (10 per cent), and qualitative overlay (15 per cent).

It is only when you dig further into the researcher’s investment category that you find an assessment criteria relating to liquidity. And even then it has a weighting of just 1 per cent in just of the one of four subcategories that include methodology, performance, risk profiles and process.

“I realise that the unlisted asset number, which is 8 per cent of the underlying investment process rating, could be seen as low,” Rappell conceded. “However, this is complemented by looking at how unlisted assets and overall portfolio construction fit together.”

Rappell also said the impact from the coronavirus and the government’s early release provision would not necessarily lead to the researcher changing its ratings framework.

“We are no doubt learning through the current COVID-19 crisis and will be including any learnings through our current review,” he said.“While we have been talking to a wide number of funds, it is more acute for a small subset of those we are talking to.”

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