The role of the custodian post pandemic

As the COVID-19 pandemic affected organisations across the world in 2020, the challenges faced by superannuation and pension funds worldwide were an important reminder of how nimble today’s businesses need to be to survive.

Super funds saw a huge spike in switching and withdrawal requests, which for some brought challenges with managing liquidity. Further, the switch to home working meant many providers were increasingly focused on their digital capabilities, in order to continue to operate effectively and manage client expectations.

As one of Australia’s largest super fund custodians, BNP Paribas Securities Services worked closely with clients to help them meet many of these challenges. What we have seen is an acceleration of existing trends and in some cases a permanent change in the way super funds operate. Here we outline some of the key trends we are witnessing and the role we are playing as custodians.

Stress testing funds to meet future challenges

The market volatility of 2020 meant super funds were overwhelmed with requests from clients seeking to minimise losses by switching to less risky assets.

The Australian Taxation Office (ATO) Early Release of Super Scheme, which allowed Australians experiencing hardship to withdraw AU$10,000 from their super fund in 2019/20 and a further AU$10,000 in 2020/21, also resulted in an extraordinary number of withdrawal requests.

Some 1.5 million Australians applied for early release of their superannuation in both financial years (between 20 April and 31 December 2020). In total, there were 4.5 million approved applications to release super from APRA regulated super funds, totalling AU$37.4 billion[1].

While some super funds were well prepared, for many the impact was that asset sales were needed to meet the resulting liquidity requirements.

As a result of the pandemic, more super funds are now focused on stress testing their investment strategies to ensure they can balance performance and liquidity during extraordinary market events. As custodians, we have a key role to play here, providing access to the latest risk analytics tools, along with the governance resources to ensure super funds remain compliant with changing regulations.

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