Unlisted property burns superannuation funds

According to The AFR, industry superannuation fund Hostplus had sought a $1.5 billion cash redemption from unlisted commercial property investor trust ISPT. However, ISPT has rejected its request.

Hostplus may now try to sell its units to other investors in ISPT, although just $20 million in units were transferred between investors in the 2019 financial year.

Meanwhile, fellow industry fund Cbus has criticised AMP Capital, which holds $6 billion worth of property assets. Chief investment officer, Kristian Fok, says it is still waiting for payment 15 months after it requested a $550 million redemption from AMP Capital:

The Australian Financial Review understands the board of ISPT has exercised its right to refuse any redemption request deemed not to be in the best interests of all unit holders…

Greg Combet, the head of lobby group Industry Super Australia, previously told the Financial Review that Hostplus was seeking to rebalance a portfolio overweight to unlisted assets given the downturn in listed markets…

At the end of February, almost 30 per cent of Cbus’ assets were in unlisted markets, mostly in property and infrastructure.

As we know, industry super funds are facing an avalanche of requests from its younger members for early release of their superannuation.

While industry-wide requests are estimated to reach only $27 billion, industry funds have suffered triple the withdrawal rate of retail funds.

These same industry funds also have an overweight exposure to unlisted assets like property and infrastructure, which has allowed them to derive an “illiquidy” premium that has boosted their long-run returns.

Now these same funds have found themselves in strife having to sell down these illiquid assets to fund redemptions by their young membership base, which has been hit hardest by the COVID-19 economic shock.

Unconventional Economist
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  1. To be fair: they’re facing an avalanche of redemption requests unleashed by an unexpected and very sudden change in government policy, which upended decades of stable policy.

    I assume we still expect superannuation funds to be well diversified. Allocations to unlisted property are totally defensible, particularly in the context of not wanting an over concentration in listed equity markets/govt debt/corporate credit, trying to reduce cross asset class correlations and volatility, and within a framework that did not present any dramatic changes to their liquidity profile.

    It’s easier to criticise their approach from a relatively safe seat running $50m in funds, as opposed to $50bn.

    • PlasterMEMBER

      A cynic might say that the coalition gov’t had set up the industry funds for severe impairment in this way, just for being too close to the left (if that’s the word) and (more importantly) for being in competition with their donors.

  2. bcnichMEMBER

    Start preparing for the collapse of the global financial system
    This is it
    We are here

    • How can it be collapsing? There’s money everywhere!! The after 🥳 party is just starting. 😄

    • We are at an inflection point presaging a reallocation of wealth, like the many that have come before.

      But the system itself never collapses. It just takes a hit, dusts itself off, and presses on, bruised but never broken.

    • Which bank you reckon will collapse first in Oz,
      I have a strong feeling there will lines front of atms

      • bcnichMEMBER

        Don’t think you’ll get a chance, they will close them or limit to $300 a day
        How could you possibly say one is better than the other.
        All four are a disaster

        • Yep, happy I listened to you before and took all of it away from the 4, and stacked some emergency cash

          • bcnichMEMBER

            I thought they were already gone
            Did they let that organisation continue after RC findings
            What a joke
            They’ll be gone for sure
            Think there will be mergers take over of small banks bail ins and nationalisation eventually
            Maybe big 4 into 2
            I’m not sure other than things won’t be the same as they are now
            My feeling Westpac will be the main problem this time

      • Bertrand Russell

        Macquarie – doubled their dodgey mortgage book and then doubled it again – they literally went “all in” on the retail residential mortgage market and relied exclusively on the dodgiest brokers they could find – literally the ones booted after the Royal Commission.

        • TailorTrashMEMBER

          …….and I vaguely remember seeing an advertisement from them in the last week pushing an attractive term deposit product …….looking for granny’s money now that the big end of town is struggling ?

      • MountainGuinMEMBER

        Aussies seemed to panic about toilet paper a bit after the story of the dunny paper robbery in hong kong 17 February. How quick will the bank run start if we get a few reports of ATMs or banks running out…

  3. gunfredMEMBER

    Serves them right for not considering prudent investment strategy. How many of their directors are union or ex-union bosses who have bugger all knowledge of investments or strategy..