POWERED BY MOMENTUM MEDIA
Retirees need to manage tail risk
Managing tail risk is vital for serving superannuation fund members in the retirement phase, a whitepaper from Wheelhouse Partners has found.
The paper showed that managing tail risk is important for anyone not in the accumulation phase, as they need regular income to fund their lifestyle and ongoing obligations and liabilities. It said that this was important in a financial environment in which financial crises are increasingly commonplace.
The paper highlighted sequencing risk, behavioural loss aversion, and diversification and liquidity as the key reasons why managing tail risk is important to members in retirement.
Wheelhouse Partners managing director, Alastair MacLeod said that advisers needed to consider that retirees have different needs when considering their investments.
“Advisers and their clients must recognise the very different objectives of retirees, and adjust their portfolios with appropriate tail risk management strategies to accommodate longevity risk,” he said.
“As people approach and enter retirement, their financial course is unknown but already largely set. Their outcomes are dependent on the future returns with which they will be presented.”
With traditional approaches to managing tail risk, such as using cash, becoming increasingly ineffective, MacLeod said that there are alternative solutions. He pointed to exposure to the growth of equity returns by reshaping those returns and thus reducing risk as a possible rail risk management strategy.
The whitepaper suggested that equities could provide a source of liquidity during periods of financial crisis, as compared to risks in other asset classes which tend to correlate during crises.
Recommended for you
Super funds had a “tremendous month” in November, according to new data.
Australia faces a decade of deficits, with the sum of deficits over the next four years expected to overshoot forecasts by $21.8 billion.
APRA has raised an alarm about gaps in how superannuation trustees are managing the risks associated with unlisted assets, after releasing the findings of its latest review.
Compared to how funds were allocated to March this year, industry super funds have slightly decreased their allocation to infrastructure in the six months to September – dropping from 11 per cent to 10.6 per cent, according to the latest APRA data.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.73 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
30.15 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.71 3 y p.a(%)
