Super funds lose billions as crisis hits

AustralianSuper, IFM Investors, SunSuper and UniSuper have booked billions of dollars in losses across their unlisted assets.

Australian Super CEO Ian Silk Picture: Britta Campion

The nation’s biggest investors, including AustralianSuper, IFM Investors, SunSuper and UniSuper, have booked billions of dollars in losses across their unlisted assets as the coronavirus crisis extends beyond equities and bond markets to wreak havoc on infrastructure.

The slide in infrastructure portfolio values, in the wake of a 30 per cent crash in equities markets and turmoil across bond and fixed income markets, further places pressure on the $3 trillion retirement savings sector, which is confronting a potential liquidity squeeze.

This includes a cash hit as customers switch retirement savings out of balanced options and into cash, and the prospect of lower inflows as workers are laid off and contributions dry up.

At the same time, funds face an expected $30bn in early drawdowns as part of the government’s hardship measures outlined on Sunday that influential consultancy SuperRatings has warned could result in some funds “freezing” assets.

The nation’s biggest superannuation fund, the $180bn AustralianSuper, on Tuesday revealed it had cut the value of its unlisted ­assets portfolio, which includes toll roads, airports and infrastructure, by 7.5 per cent. This reduced returns across its flagship balanced fund by 2.2 per cent.

AustralianSuper chief executive Ian Silk said the revaluation would help members have an up-to-date view of their savings during the “unique” crisis.

The union-and-employer-backed industry fund vehicle, IFM Investors, which owns a string of infrastructure assets, cut by an average of 7.6 per cent its Australian unlisted holdings, which includes a number of airports and ports, aged-care facilities and education groups.

However, IFM did not elaborate on the updated value of its international assets, such as British airports group Manchester Airports, Indiana Toll Road, Polish deepwater container port DCT Gdansk, and Vancouver and New York ports operator Global Container Terminals.

“IFM Investors has responded to changing market conditions due to the COVID-19 pandemic by applying an out-of-cycle revaluation to certain assets in our infrastructure portfolios, resulting in the valuation of these Australian assets being reduced by an average of 7.56 per cent,” an IFM spokesman said.

While infrastructure assets have been a source of steady and rising returns for super funds in a low interest rate environment, the fall in values reflect the damage wrought by the coronavirus crisis and the economic damage inflicted as governments seek to limit the spread of COVID-19 by shutting down travel, logistics and business activity.

UniSuper, one of the country’s biggest funds that looks after the nest eggs of university staff, said it had booked a 6 per cent decline in the value of its unlisted infrastructure holdings and cut its property investment values by 10 per cent.

Many more super funds across Australia are reviewing the value of their unlisted assets, generally done on a quarterly basis, with ­assets from private equity investments, property, ports, toll roads and airport holdings being accounted to reflect their actual value. Some large funds have invested heavily in unlisted assets in recent years, such as the Queensland-based QSuper, where 27 per cent of its $110bn portfolio is held in unlisted assets, according to Chant West data.

“QSuper has a valuation policy and an established process to review valuations of unlisted assets when appropriate,” a QSuper spokesman said.

About a quarter of the $70bn SunSuper’s investments are in unlisted assets, and the fund’s chief investment officer, Ian Patrick, said the SunSuper in early January began stopping “roll forwards” of the discount rate used to credit infrastructure assets as the super fund examined airport arrivals and valuations.

“The increasing number of governments locking down their borders and signalling extended restrictions on travel will have impaction airport valuations that will increasingly become evident,” Mr Patrick told The Australian.

SunSuper has both and external and internal valuation team, and the fund reduced the value of its unlisted airport assets weeks ago. “To us, it’s part of our ongoing prudential practice. We also made adjustments to our private capital portfolio, mainly in response to ­equity market conditions,” Mr Patrick said.

He said super funds were unlikely to sell out of unlisted assets because managers bought in on a long-term horizon.

A Cbus spokesman said the $40bn fund had “early valuations” it was “using as a basis for downward adjustments for some assets and we are working through this detail currently”.

Over the past decade, the $750bn not-for-profit industry fund sector has derived a great deal of its outperformance compared to the bank-run retail sector thanks to its propensity to invest in unlisted assets.

The recognition that previously steady returns in the unlisted space are being hit comes as the nation’s super funds stare down the threat of a squeeze on liquidity amid a government plan to allow sacked workers to access up to $20,000 worth of savings, and as members rush to switch their money into safer assets such as cash options.

The superannuation sector has welcomed moves to open up retirement savings for workers experiencing hardship, but industry lobby groups have expressed dismay that they were not consulted on the plan and have raised concerns the proposal could increase liquidity issues faced by the sector.

The government is expecting up to $30bn worth of savings to be withdrawn.

Jeff Bresnahan, chairman of consultancy SuperRatings, said the government needed to refine its hardship access proposals “fast” amid concerns savers who draw down could significantly reduce their own future earnings, force funds to sell assets into falling markets, and risk a situation where a fund had to freeze its assets due a rush on drawdowns.

“The current potential for rorting the system is significant,” Mr Bresnahan said. “If, as a result of unnecessary claiming, some funds are forced to consider freezing withdrawals to protect their remaining members, what will the government do then?

“This is not new. Every financial crisis has resulted in a small number of investment funds being frozen, although this might be a first for super funds.”

About 90 per cent of AustralianSuper’s unlisted assets are valued by an independent valuer on a quarterly basis. AustralianSuper, which had about $180bn in funds under management before the COVID-19 crisis, carries most of its members in the flagship $130bn balanced option.

“In the current unique circumstances, AustralianSuper has moved to revalue its unlisted assets so that members can have an up-to-date picture of their superannuation balances,” Mr Silk said.

“The values of all investment portfolios have been adjusted to reflect the economic and financial market impacts of COVID-19. The valuations reflect all the available information at the current time. The fund will continue to constantly monitor the outlook and ensure valuations remain fair.”

Unlisted assets make up about 22 per cent of its overall assets, and include toll roads such as WestConnex, as well as Port Kembla and Port Botany, Ausgrid, Indiana toll road, and Brisbane, Perth and Vienna airports.