Mr Sicilia detailed a number of stress-testing scenarios Hostplus had run, ranging from 10 per cent to 30 per cent of the fund being redeemed in one year to the same amount being redeemed every year for seven years – with zero member contributions over the same period – saying “at no point is this a terminal event”.
“SG is switched off or for whatever reason there’s a pandemic or your industry stops working for an entire seven-year period…For Hostplus either a 10 per cent redemption or a 30 per cent redemption and zero returns over a whole seven-year period and zero member contributions over a seven-year period does not kill the fund,” Mr Sicilia told the AIST Superannuation Investment conference.
“Things aren’t looking great and the SAA (strategic asset allocation) is out of shape, but at no point is this a terminal event.”
An AIST poll found that 60 per cent of respondents did experience the impact of the early release scheme, while 20 per cent said that it had a major impact and 40 per cent said it had no impact. ‘New age’ super funds with younger member groups and different investment strategies were believed to have been hit hardest – but Mr Sicilia said that Hostplus had no issues, saying “There was never going to be a liquidity problem”.
“We were more worried about preserving the SAA of the fund and investment integrity than early release, which was just an automatic process and it was all met. That wasn’t an issue…early release is not an investment matter. You come up with the cash and it’s handled by somebody else,” he said.
Hostplus attracted criticism in the early days of the COVID-19 crisis for its significant exposures to illiquid assets such as infrastructure and property, with Liberal senator Andrew Bragg saying it was a sign of “bad management and poor investment governance”.
“Superannuation funds which may have overextended into illiquid assets, such as infrastructure and property and who did not retain adequate cash and other liquid holdings, did so knowing the risks they were adopting,” Mr Bragg said in April.
“The strong investment returns on illiquid assets are, in fact, referred to as the ‘illiquidity premium’, a reward for the risk funds are willing to adopt when they buy these lumpy assets that are hard to sell.”
