Super fund CIOs say they’ve not been caught out holding too many illiquid assets.

AustralianSuper’s Mark Delaney said stress testing had been performed on “much bigger numbers” than was being anticipated.
“It’s still very early on,” said the CIO of the $172 billion fund.
“Most funds I’ve spoken to have adopted a very conservative approach to make sure they are not caught out.”
The large allocation by superannuation funds to unlisted or illiquid assets such as private equity, infrastructure and property has become a source of controversy amid a potential sell-down of positions to meet withdrawals.
But the CIOs said these allocations allowed members to gain exposure to the broader economy and the risks often justified the return.
“Some of the best assets, companies and investment opportunities present themselves in illiquid form, and that is not a reason to avoid them,” TelstraSuper chief investment officer Graeme Miller told the panel.
He said there was an interesting debate as to whether public or private markets valued investments more appropriately.
“Listed markets don’t always get things right. We have just seen a market plunge by 38 per cent and then rise by 28 per cent,” he said.
“To put that up as a poster child for a cogent, rational valuation of future cash flow streams is a notion that can in fact be challenged.”
Though superannuation funds say there are opportunities in unlisted assets, the challenge is making sure they are valued appropriately particularly as members are switching or withdrawing funds.
QIC’s Allison Hill said the asset manager was evolving its policy from quarterly to monthly valuations and was taking into account the latest information – such as foot traffic and cash flows.
MLC chief investment officer Jonathan Armitage said there was a “lot of hard work” in determining asset valuations amid the current turbulence, and said the variations were greater in private equity than in property and infrastructure.
“For certain types of businesses the revenue component is proving quite volatile,” he said. “There are a couple of businesses that spring to mind where you have revenue on a weekly basis moving 20 to 30 per cent both ways.”
He said it was “important to make sure members can trade equitably”.
“The way economic scenarios are playing out, it is not producing a linear set of outcomes for all investments.
“So it does mean an awful lot of hard work, alongside partners, to really understand what is going on in those individual companies and then making an informed assessment of the value.”
First State Super’s Damien Graham said the challenge for super funds was to ensure they did not become a forced seller of assets.
“That can include listed assets. Having to sell [equities] at a 30 per cent loss is not a good outcome,” he said.
“There are liquid assets in the system. It’s just a matter of not selling them when you don’t have to.”