Hospitality industry fund CIO Sam Sicilia has hit back at criticism of his investment strategies and fears about the fund’s ability to withstand the current economic downturn, saying most criticism was founded on assumptions that are “simply wrong”.

Sicilia’s Twitter account dropped silent at the end of March after a series of widely publicised exchanges defending the health of Hostplus members’ funds and criticising the federal government’s early-release policy.

Sicilia told Proimos he would be back on Twitter at some stage, but he would never again argue with anyone who hides behind a pseudonym.

“I tried to argue from a thought leadership perspective on forums like Twitter, and the recipients of that were people with vested interests,” Sicilia told Market Narratives. “The regret is believing I could convince those people. We need to remember that super funds in general and people like me that work for industry super funds in the investment game, we stand in the way of some of those people… making a squillion of money if the super system wasn’t there.”

Critics assumed Hostplus had a pending liquidity crisis by looking at the fund’s strategic asset allocation and seeing a lot of illiquid investments, but the fund’s actual asset allocation was a lot more liquid than many realised, Sicilia said.

Speaking on Market Narratives, a podcast series hosted by Investment Magazine’s head of institutional content Alex Proimos, Sicilia said Hostplus responded to these concerns by putting its actual asset allocation on the landing page of its website at the beginning of April.

While Hostplus has a strategic asset allocation to cash of zero, the actual asset allocation to cash was 13 per cent. The fund’s strategic allocation to fixed interest is also zero but its actual asset allocation to fixed interest was around 4 per cent.

“When you do the sums… it meant we ended up being nearly two-thirds liquid,” Sicilia said. “So that silenced, in essence, the doomsayers.”

To listen to the full unedited interview with Sam Sicilia on the Market Narratives podcast click above or find the series and episode on Apple Podcasts, Google Podcasts or Spotify.

Funds move away from the strategic asset allocation set by their trustee boards due to factors like cash flow, market volatility and investment opportunities, Sicilia said. They usually rebalance back to their strategic allocation with time but this was unnecessary with so much of the fund already liquid, he added.

Critics also assumed most Hostplus members would take advantage of the Australian government’s superannuation early release scheme leading to a cash crunch, but the fund’s high proportion of young members (more than half its members have an account balance of around $2000) meant many simply didn’t have enough in their account to withdraw the $10,000 tranches that were on offer.

In response to reports in late April that Hostplus had asked property investment trust ISPT for a $1.5 billion redemption which fed into concerns about an impending liquidity crisis, Sicilia said the fund had done so due to the long lag time for such applications, and a contractual agreement with ISPT that any such requests had to be made by a critical date each quarter, which in this case was 16th April. The early release scheme began on 20th April.

“We didn’t know the demand from our members for early release,” Sicilia said. “We had done some modelling of the low, mid and high case but we didn’t know for sure. So we knew that if we had to sell equities to pay the early release, there would be a need to rebalance our strategic asset allocation at some stage in the future and so we were just preparing for that.”

One-third of Hostplus members are from its public offer status and aren’t necessarily from its core industries of hospitality, leisure, tourism and sport, which have all been hardest hit by the Covid-19 pandemic, Sicilia said. Cash inflows surpassed $500 million for each of the months of April, May and June, showing a lot of the fund’s members are still working and their employers are paying their super guarantee obligation.

On criticisms that Hostplus was gaming the system with its balanced fund that contains a large number of what would traditionally be considered growth assets, Sicilia said the labels “growth asset” and “defensive asset” were suited to an investment environment of the past and have since become obsolete to the point of being “nonsensical”.

“We’ve designed an investment strategy that’s very well suited to 1.2 million members of average age 34, with huge cash flows, not retiring anytime soon,” Sicilia said.

“I hear [critics] say it’s unfair Hostplus has younger demographics. It’s unfair Hostplus’ time horizon is so long. It’s unfair that the default system from the hospitality industry channels most of the money into Hostplus. I see nothing unfair about any of that. If that’s what’s generating the returns for our members then that’s the model everybody should use.”

Proimos and Sicilia talked about a range of issues including the valuation of unlisted assets, investing in private equity including Paul Bassat’s Square Peg Capital, and how investors should handle increased sovereign and regulatory risk.

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