Hostplus deputy chief investment officer Greg Clerk has downplayed the fund’s supposed liquidity crisis during the government’s 2020 Early Release Scheme, saying it was never in danger of a liquidity crunch despite what was written in the press.

Speaking on a panel during the Association of Superannuation Funds Australia conference, Clerk said when the ERS scheme was announced in March there were several factors that needed to be “triaged”, including both expectations of a significant take-up on the scheme and a broader  “global tumult”.

“But we were never in a liquidity situation,” the deputy CIO said. “70 per cent of the fund was in liquid assets, that well beyond even the worst scenario we could imagine in terms of the ERS.”

Clerk brought onto the panel as a late replacement for CIO Sam Sicilia, who fell ill is one of two deputy CIOs at the $50 billion fund predominantly aimed at hospitality workers. (A second deputy CIO, ex-VicSuper CIO Andrew Howard, was brought on board in March last year to assist the fund buy up equities in the market sell-off.)

His comments support those made by Sicilia in a June appearance on the Market Narratives podcast, where the CIO said most of the criticism of the fund’s liquidity position were based on assumptions that were “simply wrong“.

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

While Hostplus has a strategic asset allocation to cash of zero in March, Sicilia said on the podcast, the actual asset allocation to cash was 13 per cent.

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

Clerk was joined on the panel by The Conexus Institute CEO David Bell, who noted that while the media tends to focus liquidity concerns on “the broad idea of insolvency”, there are actually three “second order issues” that become prominent; portfolio quality, cost of liquidity and equities.

“Liquidity is really a nuanced issue,” Bell said.

A crude measure of performance

The panel which was hosted by Willis Towers Watson head of retirement solutions Nick Callil and also included AMP Capital CIO Debbie Alliston – verged from the pandemic to the Your Super, Your Future performance test and the unintended consequences it may have on funds.

Bell said after careful examination by the superannuation think-tank (conducted with five other consultants including Frontier Advisers and Rice Warner) the test could only be described as a “crude” measure of performance.

Not enough assets are covered in the test, Bell said, and the eight-year timeframe was too short. It’s also a “backwards looking” test, he said, with “too few indices, while it ignores the impact of asset allocation decisions”.

“What we found was the test would have limited accuracy,” Bell said. “We have concerns that it won’t work well.”

Consumers may have trouble understanding the metrics employed in the performance test, Bell continued, and fund portfolio managers would struggle to “keep at least one eye on test as they manage into the future”.

“So question marks about the effectiveness but also concern about the outcomes for the future,” Bell said.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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