Mr Bragg issued a letter to the prudential regulator asking 13 questions on notice around liquidity and stress testing.
He noted concerns around the liquidity of super funds in light of the early super release measure, which kicked off on Monday. There has been speculation around whether industry funds will be able to hand over enough cash, particularly in regard to their investments tied up in illiquid and unlisted assets.
Funds such as REST and First State Super have assured their members that they are confident they have enough liquidity to weather the redemptions ahead. But their positioning has followed a number of super funds raising concerns around liquidity to the government.
Mr Bragg commented: “The confidence of the individual funds contrasts with the subterranean industry campaign for a bailout some weeks ago. This appears to have been an ambit claim.”
“I have sought reassurance from APRA that all the super funds have their houses in order as they have publicly stated.
“Superannuation is so opaque. We need to know how issues will be handled if any arise.”
The senator has quizzed the regulator about its supervision of stress testing, how often the funds conduct it and what scenarios they prepare themselves for, as well as if there are issues with multiple funds relying on the same investment managers.
The questions he has asked APRA are as follows:
1. Superannuation Prudential Standard 510 Investment Governance requires that “RSE licensee must have a liquidity management plan, approved by the [board].”
a. How does APRA monitor compliance with this requirement?
b. Does APRA perform its own assessments of liquidity?
2. On stress testing, how does APRA monitor trustee compliance with the following requirements set out in SPS 510 Investment Governance:
a. An RSE licensee must have a comprehensive stress-testing program that includes, at a minimum, the performance of each investment option against the stress scenarios.
b. An RSE licensee must document a description of the methodology used to select and carry out stress tests that aligns with the RSE licensee’s risk management framework.
c. An RSE licensee must ensure that the results of the stress tests are reviewed periodically by senior management and reflected in the RSE licensee’s investment governance framework.
3. What sort of scenarios are assumed for stress tests such as:
a. magnitude of market falls;
b. levels of unemployment;
c. magnitude of switching between options; and
d. magnitude of switching between funds
4. Does APRA believe the trustee boards have sufficient skills to meet their investment governance obligations?
5. How does APRA know that trustees understand these obligations?
6. Prior to recent market volatility, how regularly did APRA expect a fund to self-assess its liquidity?
7. How frequently was industry best practice?
8. When did APRA last ask funds to self-assess their liquidity?
9. What proportion of funds has conducted tests in the last month?
10. How many funds have not provided APRA with liquidity stress test results that were conducted in the last six months?
11. Are conflicts of interest evident in the investment decisions made by superannuation trustees which may have created liquidity problems in the wake of COVID-19?
12. Does a concentration risk exist in the superannuation scheme where multiple funds heavily rely upon a small number of investment managers?
13. Does APRA have any liquidity concerns about any regulated superannuation funds at present? If so, how should that be managed?
Mr Bragg has previously slammed super funds who may have overextending into illiquid assets ahead of the crisis, calling it a “sign of bad management and poor investment governance”.
As at Friday, ATO data showed more than 860,000 Australians had applied for the early super release.
APRA issued funds with a five-day limit for paying out redemptions last week.
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
