POWERED BY MOMENTUM MEDIA
How can funds mitigate the risk of illiquid assets?
A possible way to mitigate the risk of investing in illiquid markets could be by limiting the ability of members to switch between investment options, according to State Street.
Speaking to the Australian Institute of Superannuation Trustees (AIST), David Grose, head of alternatives-Australia at State Street, said there were benefits to investing in private markets, but they came with liquidity risks.
Therefore, he said, it was important to consider structural and governance changes that might arise for a fund and how they would affect those assets.
“Ultimately, as long as there’s a mismatch between the liquidity of the underlying investments and the liquidity offered to members, some of these risks will inevitably continue to exist,” Grose said.
Two options suggested could be limiting members’ ability to switch between different investment options or implementing a delay, which would reduce problems with investors trading on outdated prices.
“Regulators could encourage super funds to limit the ability of members to freely transfer between different investment options. I’d question whether the majority of members have a real need to switch between investment options more than once or twice a year, which is permitted at the moment.
“If a limit was placed on this and on transferring between different funds, it would reduce the problems caused by investors trading on old prices for private market assets.”
The Australian Prudential Regulation Authority (APRA) introduced SPS 530 Investment Governance in Superannuation last year, and it was hoped this would resolve some challenges posed by illiquid assets and improve funds’ governance.
The paper covered issues such as stress testing, valuations and liquidity management.
Stress testing was likely to be more difficult, Grose said, if a fund held private market investments as they were less transparent than those in a public market.
“SPS 530 really requires them to demonstrate that they’ve satisfied themselves in relation to appropriate valuations and considered any conflicts of interest that the manager may have faced,” he said.
AUTHOR
Laura Dew
Laura Dew is editor at Super Review. Prior to joining SR, she spent five years working at Investment Week in the UK covering asset and wealth management.
Recommended for you
The pace of economic growth in Australia is expected to “grind higher over coming quarters” off the back of lower inflation, falling interest rates, and a robust labour market, Deloitte has said.
The superannuation sector has welcomed confirmation that a controversial US tax provision will be removed.
A new analysis from environmental finance group Market Forces has reportedly discovered that AustralianSuper is on the b...
Treasurer Jim Chalmers has held talks with US Treasury Secretary Scott Bessent, intensifying efforts to resolve concerns over section 899 of the proposed “Big Beautiful Bill” in the United States.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
4
DomaCom Shoreline North Coogee
36.26 3 y p.a(%)
5
GAM LSA Private Shares AU I
35.87 3 y p.a(%)
