If recession continues illiquidity issues may be exposed

If volatility continues and a recession persists over the coming year, it would not be surprising if the Government allows superannuation to be accessed a third and fourth time, according to ClearView. 

Speaking to Super Review, ClearView chief investment officer, Justin McLaughlin said if the recession were to worsen and continue over the next year it would expose illiquidity issues for industry super funds. 

“Let’s say this recession persists, the government is going to be looking at how to fund this. They’ll be asking ‘do we essentially keep borrowing and running balance sheet up? Or and now since we’ve crack the door open on access to super do we do it again for a third or fourth time?’,” he said. 

“I would not be shocked to see if the recession is longer lived than people are currently thinking that the govts tapped into super again.  And if that happens, the illiquid assets will be exposed.  

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“At the moment they are big enough and the withdrawals are quite small so they shouldn’t have huge problems but if they were to go down the track and the government says people can withdraw more out of super that could pose some interesting issues.” 

McLaughlin said if this were the case, financial planners at a minimum needed to be aware of what proportion of the fund was invested in illiquid assets and to be aware of if other assets were appropriately priced.  

“If they are appropriately priced and there is some selling they can be sold at a reasonable price. But if they are not appropriately priced then they’ll need to be marked down financially,” he said. 

“If we were to be in this situation planners would need to focus on liquidity and pricing policy. Last thing you want as a financial planner is to find part of fund is frozen.” 

McLaughlin noted that pricing of illiquid assets were quite opaque and a lot of industry funds had a large proportion invest in unlisted assets.  

“We don’t really know what the pricing is like, yet there are tremendous legal and ethical trustee issues that go to having a large portfolio where the price of an asset is worth whatever a valuer says it is,” he said.