Stop press: Superannuation fund says super bailout a great idea

Via AFR:

When AustralianSuper chief executive Ian Silk puts the case for possible Reserve Bank of Australia liquidity support for industry super funds, he points to the fact that the financial system is in unchartered territory.

He says if the Treasury’s estimate of a $27 billion drawdown of super savings by millions of Australians proves accurate, the industry will probably sail through with no liquidity issues.

But if Treasury is wrong and the figure is more like the $40 billion to $50 billion estimated by actuaries Rice Warner Silk, there will almost certainly be industry funds in need of emergency liquidity.

“I think any discussion about it, including Murray’s comment about moral hazard, has to be seen in the context that as far as I see it, this has never happened before, that people have been able to take significant amounts of money out with virtually no notice,” Silk says in an interview with Chanticleer.

Is it a “black swan” Silkie?

Why even interview this bloke? His views are so coloured that they are useless to anyone but himself.

A business based upon nothing but the mandated flow of savings should NEVER have a liquidity issue. If some funds have gotten over-leveraged owing to a failure to manage the business cycle then they should cop it sweet. Sell assets, crystallise losses and face up to their poor performance with members.

All interests make this same “black swan” claim every time they mismanage a cycle. The shocks are always different but the cycle is always the same. The colour of the swan is irrelevant.

Super is a market. Let the losers feel its sting.

David Llewellyn-Smith

Comments

  1. Give them the liquidity facility (as it protects the clients) but make the RSE’s resign for breaching their duties as a Trustee.

  2. darklydrawlMEMBER

    haha. That headline is straight from the subbies at The Betoota Advocate! 😀

    And you’re correct. Anyone who bothers to look at history can tell that these super funds cop a sh!tshow market about once every 10 years and should plan accordingly. Whilst the virus is different to the GFC – It is not a black swan – this was entirely predictable and a known risk.

    • DominicMEMBER

      Perish the thought that assets might actually be available at something approximating ‘fair value’ — “Ze bubble must be kept inflated!” screams deranged man with crazy eyes.

  3. But even a business with mandated flow of savings still has to stay in business, and you don’t set your cash and other liquid holdings for a 1 in a 100 year event, otherwise everyone else just sails on by performance wise for the other 99 years.

    And systematically, if everyone hordes liquidity over the long-term it bakes in a massive pool of under-risked, under performing assets, which affects everybody.

    It would make more sense to allow members to drawdown the $20k gradually over the course of the year, and let the super funds access emergency liquidity lines from our central bank of last resort, which clearly has no limit to money printing.

    • FY19 inflows for Australian Super (the fund, not the environment) were $16 billion. If your Treasury team can’t cash flow manage their way through these additional withdrawals, which would be pretty easy to model on a worst-case scenario, then they should all be forced to grow ridiculous moustaches and sport them in public. Even the women.

      • They should be able to manage it just fine over the course of a year. Within a couple of weeks/months is another story.

        • It’s a short-term asset allocation deviation. You model the inflows (reduced due to unemployment), you model the pension reductions,you model the bond maturities, you model the withdrawal requests. They have actuaries doing this every day, and Silk is just talking his book. Though maybe he is using reverse psychology and highlighting the strength of Aust Super versus other funds, in which case that would be pretty clever!

    • Jumping jack flash

      printing money is taboo and must be avoided at all costs. Much better to use QE. The problem with QE is that it eventually ends up as debt that requires interest to be paid on it.

      I don’t think super funds would be eligible for QE, but I suppose that’s just a formality. There are no hard and fast rules now, I’m pretty sure the world is just trying whatever they can dream up and then seeing what the effects are after a few months to gauge whether it “works” or not.

  4. Jumping jack flash

    I always compare these numbers to Australia’s yearly mortgage interest bill of over 100 billion dollars now.

    24 billion hardly rates a mention these days, and while 50 billion sounds like a lot of money, it is still less than half as much as what the indebted people of Australia need to pay as mortgage interest each year.

    “A business based upon nothing but the mandated flow of savings should NEVER have a liquidity issue. If some funds have gotten over-leveraged owing to a failure to manage the business cycle then they should cop it sweet. Sell assets, crystallise losses and face up to their poor performance with members.”

    Spot on!