It was during the critical moments of the government’s closed room discussions, after financial markets had already reacted to economic shutdowns and rolling lockdowns related to the spread of COVID, when the tone to underpin many of the significant political and investment decisions to be made throughout the remainder of the year was set.
Government already had a mandate to move swiftly and unilaterally to pull the superannuation and financial services industry into line after its most grotesque parts were aired during the Hayne royal commission into misconduct. The crisis atmosphere in late February and March proved to be an accelerant for swift and decisive decision making, calls that would be imbued with an ideology developing in the shadows of a system still firmly in the hands of its Labor Party and union creators.
The fact Treasurer Frydenberg’s announcement one Sunday in late March came as a surprise to those holding the custodianship over Australia’s $3 trillion pool of retirement savings spoke volumes of the approach government had decided to take, an approach that would be consistent in more key decisions throughout the remainder of the year. 2020 will go down for many as the year we all made concessions in the way we live and work; for the superannuation industry this will be the year the system was reshaped forever.
Even before Frydenberg’s announcement telling Australians they could withdraw up to $20,000 from their super accounts, managing liquidity was on the minds of those in charge of investing the funds.
It was February 20 when financial markets peaked before tumbling for a full month until reaching a bottom. A gradual reflating of asset prices since has seen local equity markets regain more than three quarters of the value they lost during these harrowing weeks. From its peak on February 20 to its nadir on March 20, the S&P200 was down some 36 per cent before recovering most but not all of its value by late December.
The unlisted assets that had served industry funds so well for many years over night had became cause for concern, particularly for those funds with concentrated membership in the hardest hit retail and hospitality sectors. For the first time sector concentration risk was being talked about above all other factors as what should have been an obvious tenant of diversification.
The months between March and May were a case study in how strategies, business models and indeed entire systems performed in the grips of a crisis like one no one had ever seen before.
Unprecedented quickly became the description de jure for what was happening all around. Early access to super seemed to be the tip of the iceberg for what the government was preparing the superannuation sector for to stimulate the economy while liquidity concerns among the countries largest and most prominent funds had surely tested the foundations of the country’s most important wealth pillars. Meanwhile, the RBA and central banks globally moved swiftly to sure up economies as the engines of consumerism and capitalism ground to a halt.
Asset write downs soon became the focus of attention for consultants, particularly among the once prized airports and commercial real estate assets where the pandemic has hit the hardest. Some of the most difficult questions will surely be asked of funds holding these assets in 2021 and beyond. Only the brave and most inspired bargain hunters will be venturing into these areas early.
In the heat of the carnage it was the supposed shape of the recovery that grabbed the most headlines and column inches, but as time passed during the year, people soon broadened their horizons from short term week-to-week thinking, towards value creation opportunities in the years and decades ahead.
Many voices egged the government and central banks on to continue to prop up falling economies and broken financial systems – and they delivered with more stimulus than anyone has ever seen. This will certainly be a feature investment teams recalibrate their strategies around for the years ahead.
The austerity continues into 2021 and for the foreseeable future as interest rates remain at their bedrock and the stimulus programs continue to be an essential lifeline for so many businesses, individuals and households, which may otherwise be teetering on the brink of financial disaster.