Will Member Super Fund Withdrawal Crash Hostplus?
Warren Buffett was famously quoted “Only when the tide goes out do you discover who's been swimming naked”. And I’m sure you would agree with me that the tide has now definitely gone out!
So who’s been swimming naked and what does it mean to you?
Hint? They’re endorsed by “the barefoot investor”.
Back in March 2019 Sam Sicilia Hostplus’ CIO (Chief Investment Officer) was interviewed by Bloomberg. Saying and I hope this was a miss quote
“Hostplus has held no cash since at least 2011 and bonds in its portfolios were effectively zero over the past three years, according to Hostplus. The firm prefers stakes in office buildings, pipelines and emerging technology”.
Fact since March 2020 (12 months after that interview) Australian and Global shares have lost over 30% of their value.
What about unlisted assets?
24th March 2020 Mark Delaney CIO at Australian Super (Australia’s largest superannuation fund) reported Investment magazine “the market downturn triggered from the outbreak of the coronavirus had seen the value of its unlisted assets fall by 7.5 per cent on average”. On the 25th March 2020 Unisuper have also reported cutting their onlisted infastructure by 6% and unlisted property holdings by 10%
Hostplus are yet to report any decline in value to their unlisted assets but one would expect they may also decide to do so and revalue down their unlisted assets as other industry funds are doing so too.
But what’s concerning me more is….
Hostplus member’s inflows are pre dominantly hospitality, tourism recreation and sport workers. These are the frontline workers most effected by the Covid-19 with the mandated government closures of café’s, hotels, cinemas, sporting and non-essential travel. These are the individuals who are facing immediate or near future their loss of employment and income. Meaning hospitality workers members contribution inflows will probably reduce to a trickle and be so for some considerable time to follow.
Then there is the greater access to super.
On March 22 the Australian Federal Government announced individuals who are face financial hardship and are impacted by the Covid-19 and lest their job early release of up to $10,000 of their superannuation balance 2019/2020 & 2020/2021 financial years
As in its name Hostplus is the industry fund for Hospitality workers as such, most of Hostplus members should be eligible to have early access to their super savings.
What’s the possible early access withdrawals look like in potential outflows in 2020 for Hostplus?
By my calculations if single members can withdraw $10,000 this financial year and a further $10,000 next financial year and Hostplus has over a million hospitality employed members. Hostplus face the very real possibility of up to $20 Billion dollars in potential withdrawals before this 2020 calendar year has finished.
Back to Bloomberg and their interview with Hostplus chief investment officer, Sam Sicilia “Hostplus, which represents swathes of the country’s baristas and restaurant waiters, had about 53 per cent of its $40 billion invested in the share market, and the remainder in unlisted assets including airports and water-cleaning plants”.
Baiscly if Hostplus haven't changed their asset alloction since March 2019 then. 53 % of Hostplus share market investment asset values woule be down by 30% or more, 47% of their assets are illiquid. On top of this I predict contribution in flows to be significantly lower over the short to medium term and members will be contacting Hostplus and needing to withdraw on mass.
My question is how will Hostplus fund the increased demand for essential “Financial hardship” withdrawals by its members?
I couldn’t find how many retiree members Hostplus has, however my biggest real concern for them is if Hostplus reduce withdrawals and the impact this may have on their ability to fund their retirement needs.
This is not a dig at Hostplus, nor am I having a go at Scott Pape for endorsing them. We're all truely in this togeteher!
My genuine fear is for those who need access to their super may face the very real possibility that Hostplus places a freeze on withdrawals due to liquidity risk, at a time when their most vunerable members require to access their money.
This post was written by Peter Horsfield, as such they are his personal views. Peter helps you to focus on what’s most important, the right strategies at the right time. To learn more about How to become Financially Independent visit Peter Horsfield Smart Advice
If you are stuck in a funk or you’re lost in a cloud of complexity feel free to contact me. Most often in life we just need someone to talk things through and to lighten our load a little. The following articles may also be of help
General Advice Disclosure
Sources of this information are considered to be reliable but are not guaranteed. Information published in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this document is General Advice and does not take into account any person's particular investment objectives, financial situation and particular needs.
Peter Horsfield in an Authorised Representative and Investsure Holdings Pty Ltd ABN 16 050 286 630 as trustee for Horsfield Family Trust ABN 55 609 068 513 is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523