Maybe the following article by Macrobusiness who provides a superannuation fund with their partners at Nucleus Wealth, hopefully this will make it clearer!
"Industry superannuation funds plead for liquidity ! " +supportBy Leith van Onselen
The Reserve Bank has been quietly working out ways it could establish a government-backed facility to help superannuation funds pay redemptions allowed under new rules to deal with the coronavirus crisis, even though the idea has so far been rejected by the treasurer, Josh Frydenberg...
Some funds, led by the union-and-employer-controlled industry sector, want the government to underwrite a “liquidity backstop facility” that would provide immediate cash to pay withdrawals. For- profit funds oppose the idea.
Rather, industry sources fear that the forced sale of assets would crush their value, crimping returns for people who remain in the fund.
However, University of Melbourne finance professor, Kevin Davis, backed the provision of liquidity support from the RBA, arguing that its is far superior than making industry superannuation funds sell distressed assets at fire sales prices.
...surely, one of the benefits of the super system is that it creates long‐term savings, capable of funding long term illiquid investment in infrastructure which Australia needs.
In this regard they are filling a gap left by our banks which, paradoxically, rely heavily on very short term finance to make longer term housing mortgage assets. That exposes them to liquidity risk, and in circumstances such as this, ability to access liquidity from the Reserve Bank is available by use of repurchase agreements.
Most of the problem, which these funds are admitting by inference, is that the value they are telling everyone the unlisted assets are worth is not the true value.
A few industry funds have written down assets. For example, AustralianSuper has revalued its unlisted infrastructure and property holdings downwards by 7.5%.
But look at the rest of the market. The listed property sector is off more than 40%. Airports? Down 30%+. Private Equity? Ha! You are telling me that illiquid shares are worth a few per cent less while listed shares are down 25%+ and illiquid bonds aren’t even trading?
The writedowns help, but are nowhere near the level the assets would sell for today...
This, according to Klassen, can lead to perverse incentives and a ‘prisoner’s dilemma’, whereby those that withdraw funds early before assets have been written down will receive an over-sized redemption, whereas those that remain in the fund will have their investment value diluted.
So, maybe the first step should be to actually write down the assets to an accurate value so that people who are leaving don’t shift the cost onto those who are staying?
I’ll leave it to you to decide whether industry superannuation funds’ heavy exposure to illiquid assets is a strength or weakness!
I’ve got rid of what is irrelevant to get the message across. As I’ve mentioned in a previous post that the Coalition is listening to the Retail Funds who wish to destroy the Industry Funds!
The Coalition is not listening to the recommendations by the RBA who see the value of the Industry’s Funds investments
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