Super Funds Sell Shares As Members Crave Cash
The Age
Wednesday October 29, 2008
SOME super funds are selling shares to meet a sharp rise in members switching to cash, adding to the downward pressure on Australian equities.
Chief executive of the Association of Superannuation Funds Australia Pauline Vamos confirmed that several were in the position of having to sell shares after an increase in the number of members switching from balanced funds - which include shares - into cash."This is happening with some super funds, because they have to keep their asset allocations and they can't just sell any asset," Ms Vamos said. "What that means is that they are looking at what shares to sell and what asset class to sell in order to meet those redemptions."It is happening in some funds, but it is not right across the board."Because the Australian sharemarket has lost so much value, super funds have resisted selling equities even as hundreds of members have tried to preserve their nest eggs by switching into cash. The funds have easily met the demand by simply channelling the substantial flow of money coming in into cash, instead of using it to buy shares or other assets.But some super funds are being forced to crystallise substantial sharemarket losses, adding sellers to the already depressed Australian sharemarket.The S&P/ASX200 is down almost 40% this calendar year, and more than 17% this month."It definitely has had an effect," head of Industry Fund Financial Planning Frank Gayton said. "There has been some selling from some of the funds, and there has been some downward pressure. But when it changes and markets start heading up, there will be a significant upswing."The extent of the switches ranges dramatically from fund to fund, and although the numbers have increased, they have come off a low base. The Seafarers Retirement Fund, for example, has had members in cash rise from 2% to 8% this calendar year. It has not had to sell shares to meet this. Mr Gayton, and others, said the large volume of money constantly flowing into Australian super funds, the large number of superannuation members, and that super was a compulsory investment meant there was little chance of super funds encountering liquidity problems or being unable to meet investors' demands.Managing director of research house SuperRatings Jeff Bresnahan said there was likely to be only isolated situations where funds would have to sell equities, and such cases would require only a small selldown of shares.Industry sources said the number of members switching into cash had increased significantly in the past two weeks."There's a number of things which are happening that are one-offs, and they are all happening at the same time," a senior industry figure said."You have members switching into cash, if you have hedged your international exposure your hedging costs are starting to rise because of the fall of the Aussie dollar, and the other factor is your bonds and some of your other instruments aren't as readily convertible into cash as equities are."If you haven't been managing your cash flow over the last couple of months and watching what your members are doing, you could find yourself in some interesting predicaments."
© 2008 The Age
