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Private equity, real assets exposure helping Australian superannuation savings weather the coronavirus storm

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Exposure to private equity, infrastructure and real assets is helping Australia’s superannuation savings pool weather the coronavirus crisis – but Q1’s results still showed a hefty fall for the system.

New data from Australia’s prudential regulator for the superannuation system, APRA, showed the pool contracted 7.7% in the first three months of the year, as Covid-19 ravaged world economies.

But the savings pool fell just 0.3% in the 12 months to April 2020, while bolstering cash reserves, APRA said, thanks to 2019 recording one of the best ever years for superannuation savings in the country.

Alex Dunnin, executive director of research and compliance at Rainmaker Information, said, “Compared to the 23% fall in global stock markets in first quarter of 2020 as well as the 14% fall over the 12-month period to March, this is a stunning result.”

He said the SelectingSuper MySuper performance index, which is compiled by Rainmaker, fell 11% during this three month period, while over 12-months the index is down 4%.

As a result, Australia’s superannuation savings have only fallen to March 2019 levels. During the Global Financial Crisis the SelectingSuper index fell as low as -21%, Dunnin added.

Not all parts of the superannuation sector are weathering the COVID-19 crisis equally, however, with the retail super fund sector contracting 12%, compared to the not-for-profit (NFP) super fund segment comprising corporate, public sector and industry super funds contracting 5%.

Self-managed super funds contracted 9% in the same period.

Dunnin said, “APRA figures show the retail super fund segment holds 24% of their investments in Australian equities, compared to just 15% by NFP funds.

“Retails funds are more vulnerable to fluctuations in equities markets, however, industry super funds with a larger share of their investments in unlisted assets such as real property, infrastructure and private equity were better insulated from the worst of these equities falls.”

Liquidity also became a concern for some superannuation market commentators and politicians, Rainmaker said, when the government announced the Early Release of Superannuation scheme on 22 March – with speculation that some super funds may find it difficult to pay these early redemptions.

Super funds with investments in unlisted assets such as property, private equity and infrastructure were singled out for special mentions because of concerns they may have too little set aside in cash reserves.

APRA’s superannuation snapshot, however, revealed super funds had $273bn in cash at the end of March, 27-times the amount of money that has so far been paid out in Early Release claims.

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