There’s “no question” that the superannuation industry has improved its liquidity risk practices since Covid but there’s still more to be done, according to RBA assistant governor Brad Jones, who told the Investment Magazine Chair Forum that boards need to do more to interrogate their funds’ plans to avoid systemic risks.  
 
Pro-cyclicality of the industry could be amplified by the increasing influence of financial advisers and retail platforms, Jones said, while the share of assets in retirement is going to grow, making the system “less of a closed loop”. Margin calls from increasingly large FX hedge books are also going to rise, and on top of all that there’s the “wild card” of another early release scheme.  
 
“None of us know what the next systemic crisis is going to look like, but that seal has been broken once and it behoves us to think about the possibility of whether that lever is pulled again in the future,” Jones said.  
 
“Margining and collateral requirements from counterparties are also almost certain to increase because a lot of large funds at the moment don’t have to post margin, on very favourable terms from their counterparties. As you start hitting your credit limits with counterparties, you have to include more of them, including non-domestic banks, and it would be prudent to anticipate that they will not provide such generous terms as the industry.”  
 
Jones noted that in APRA’s recent system-wide stress test, which included the four largest banks and the six largest funds, super funds presumed that they would be able to sell all their international equities and “bring that money home”.  
 
“If they think they’ll be able to act exactly the same way, there may be some fallacy of composition risk,” Jones said. 
 
“So when you’re coming up with and interrogating, as boards, liquidity risk management plans, [you should] just pause and ask the teams that are providing those plans whether they think other super funds would be acting in the way they’re proposing. 
 
“If the answer is yes then maybe it’s worth another look.”  
 
Geopolitical risk is also emerging as a new risk dimension, and said that boards need to consider how their funds would operate in a different sanctioning regime or when their critical infrastructure was threatened, adding that last year’s credential-stuffing attack was a “shot across the bow” of the industry.  
 
“You could have a number of risks metastasising at the same time: a big market event, a liquidity shock compounded by nefarious actors launching a wave of cyber attacks specifically to undermine confidence in our financial system,” Jones said. 

“It’s no longer a neat bucket.”