Super Devaluations... It Begins...

Discussion in 'Wealth Creation & Management' started by ozcopper, Apr 2, 2020.

  1. ozcopper

    ozcopper Administrator Staff Member

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    Super Devaluations... It Begins...
    (Getting in a devaluation before the withdrawals start)

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    As the Coronavirus (COVID-19) crisis continues to escalate and adversely impact investment markets, our economy and our day-to-day lifestyles, we understand that many of our members and investors have justifiable concerns regarding the ongoing impacts these matters may have on their superannuation and pension balances.

    We want to reassure you, our members and investors, that we are actively monitoring these unprecedented circumstances to ensure that your hard-earned retirement savings continue to be well managed. In doing so, it is our duty and our objective to ensure that we do everything possible to ensure that all members and investors are treated equitably during these extraordinary times.

    While the full macro-economic impact of COVID-19 will not be fully understood for some time, it’s clear that certain infrastructure and property assets such as airports, toll roads, and shopping centres have been materially affected by the current crisis.

    As a result, and taken as a broad category of assets, Hostplus’ unlisted investments would expectantly and realistically experience lower valuations in the current climate than they would ordinarily have had prior to the emergence of COVID-19 a few short months ago. With this in mind, we have worked closely with our investment managers and asset consultant to determine appropriate impacts on the valuations of these unlisted assets so as to ensure that these assets are measured and appropriate for the current circumstances. This in turn ensures that our investment unit prices appropriately reflect these circumstances in the best interests of all members and investors.

    As such, Hostplus has devalued assets within its Property and Infrastructure portfolios by a range of 7.5%-10%, depending on the individual investment and the age of its most recent independent valuation. In a similar vein, Hostplus’ Private Equity and Venture Capital investments have also been devalued, for similar considerations and prudence, by 15% on average.

    Asset devaluations are being experienced across all sectors of the economy. However, the current decreases in the valuations of Hostplus’ unlisted asset investments are, based on our analysis, less extreme compared to the current heightened volatility being experienced in listed markets. It is that long-term price stability which is a key positive attribute of our strategic investment in unlisted assets. These revaluations have already been included in the Fund’s unit pricing and are reflected in account balances.

    Alongside our professional asset managers and asset consultant, we will continue to monitor investment markets closely to ensure the pricing of our unlisted assets remain appropriate for the circumstances as they evolve and to ensure that all asset values reflect ‘fair value’ across all account balances.

    We will also continue to provide updates as new information arises. Please refer to hostplus.com.au/covid19 for the latest Hostplus updates.

    And finally, and importantly, before you make any decision about your superannuation or pension assets, we caution and encourage you to seek individual financial advice and consider your own circumstances and financial objectives. [​IMG]
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    The information contained in this material is general in nature. Consider your own objectives, financial situation and needs, which are not accounted for, before making a decision.

    Issued by Host-Plus Pty Limited ABN 79 008 634 704, AFSL 244392 as trustee for the Hostplus Superannuation Fund (the Fund) ABN 68 657 495 890, MySuper No 68 657 495 890 198.
     
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  2. Holdfast

    Holdfast Well-Known Member Silver Stacker

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  3. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    That’s ominous. To convert super to cash now means taking a hit and also getting basically no return any longer other than meagre bank interest. But if this goes on for 6 months or more and the second order consequences pile up then this will be much worse than the GFC and if the government allows people to draw down their super then it could crash the market altogether in Australia due to the super funds that are so heavily invested in AU banks and property being forced to sell big to cover the withdrawals.

    Run to cash now and take the hit but at least preserve some value or leave it in regular super fund management and risk having it all washed away when people stampede to draw out 20k and cause a share-market selling run and draining the super fund cash reserves?
     
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  4. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    Australian Super did same a week ago. Here's an extract from their web site.

    https://www.australiansuper.com/inv...ticles/2020/03/revaluation-of-unlisted-assets

    March 24, 2020

    The current market downturn is impacting the valuation of all investment assets. In response, AustralianSuper has revalued its unlisted asset portfolio.
    For unlisted assets, which are typically valued by an independent valuer on a quarterly basis, the speed at which the COVID-19 pandemic has impacted global investment markets has meant that existing valuations were no longer reflective of market value.

    In response, AustralianSuper has determined that it’s both necessary and prudent to revalue its unlisted asset portfolio. This action has been taken immediately to ensure these assets continue to be valued at fair market value and has been reflected in member balances for Friday 20 March 2020.

    The revaluations have resulted in an average fall in the value of unlisted assets of approximately 7.5%. We believe that the size of the reduction in value is appropriate for each portfolio and is modest compared to the fall in listed equity markets.

    For members in the Balanced option, this has resulted in a drop of approximately 2.2% in their account balance.


    Valuing unlisted assets to ensure fair value
    AustralianSuper has a long-standing track record of investing in unlisted assets both in Australia and across the globe. These assets have contributed to our history of strong long-term performance outcomes for members.

    Whilst unlisted assets do not get priced daily on the share market, they are regularly valued by the Fund in accordance with the Fund’s Valuation Standard. Underpinning this approach is the use of independent valuations, with over 90% of our directly owned unlisted assets typically valued by an independent valuer on a quarterly basis.

    In normal circumstances, this approach ensures that the Fund’s assets are held at ‘fair value’, which means that members’ balances accurately reflect the value of these assets; and member equity is maintained should some members choose to switch between investment options or exit the Fund.

    In current circumstances, we’ve acted quickly to revalue these assets ensure that ‘fair value’ is maintained. The revised valuations reflect the Fund’s best current understanding of investment markets, considering valuation movements in relevant listed markets and the outlook for specific sectors and individual assets.

    These revised valuations have already been reflected in members’ account balances as at 20 March 2020. We will continue to monitor investment markets closely to ensure that valuations remain fair and reflective of prevailing economic and market conditions.



    Comparison of listed and unlisted asset returns

    Unlisted assets, such as infrastructure, property, private equity and corporate debt, play an important role in a diversified portfolio as they are typically not as volatile as listed shares. In periods of strong economic growth, their values do not rise to the same extent as listed shares, and in downturns they do not typically fall to the same extent. The returns for unlisted infrastructure and property were less volatile in 2008 when the GFC had a major impact on listed equity returns.

    The returns for unlisted infrastructure and property were less volatile in 2008 when the GFC had a major impact on listed equity returns.

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    Benchmarks: Unlisted Infrastructure: AustralianSuper Infrastructure Benchmark (Frontier), Unlisted Property: MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index (post fee), Australian Shares: S&P/ASX 300 Index

    Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.


    A message to members

    Whilst it’s concerning to see the deterioration in investment markets, we encourage members to remember that superannuation is a long-term investment. History suggests that by staying invested, and not switching between options, you are more likely to be better positioned to rebuild your balance over the long-term when markets rebound.

    Consider your personal objectives, situation or needs before working out what is right for you.
     
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  5. kilo

    kilo Active Member Silver Stacker

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    I think your spot on Shaddam still time to make some choices. The dead bat bounce this week smells like a bull trap to me.

    <edit> to add; I will be taking the opportunity to withdraw the maximum allowable from my super fund
     
    Last edited: Apr 2, 2020
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  6. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    I've borrowed an image from a Holdfast post re ASX 200 pre and post GFC...Took over a year from initial decline to bottom of the market.

    As they say in the banks..."Your first loss is usually your best loss"

    upload_2020-4-2_23-6-41.png
     
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  7. barneyrubble

    barneyrubble Well-Known Member Silver Stacker

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    Worse than that, the super funds will charge you a management fee (which will well exceed interest rates) if you go cash.
     
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  8. kilo

    kilo Active Member Silver Stacker

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    That’s fine I will be in front until the management fee hits 20% per month
     
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  9. kilo

    kilo Active Member Silver Stacker

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    upload_2020-4-2_23-27-1.png

    Would love to see this data as a Log chart, reckon it would scare my pants off
     
  10. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    At times like this it is "return of capital, not return on capital" that should drive one's actions.
     
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  11. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    For super funds to charge a management fee on cash accounts is a disgrace.
     
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  12. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    My super is all cash and has been for a while and I paid a grand sum of AUD87.75 in fees to my super fund manager last year. The annual return was substantially more.
     
  13. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    The industry super funds are the cash cows that keep the union movement in Australia alive. Of course they will be trying to present a narrative that their funds are “safe” and to stay invested in them. Which may be correct to some extent. The question that we all have to ask ourselves though is whether the stock markets and property markets can endure this without a major reset and whether some sectors such as airlines, banks, mining, the financial service industry, tourism and manufacturing will ever truly recover from this if it is not contained soon.

    Another question to ask is whether you feel that sovereign defaults of states or entire countries are on the cards as a result of this event. Any string of defaults or bank runs could arise from this and put the markets into free fall. Tough decisions are necessary having seen how quickly everything has changed since the beginning of the year. The world is upside down until a cure or proven vaccine is on the market.
     
  14. kilo

    kilo Active Member Silver Stacker

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    same swapped from high growth to 100% cash in October, looking forward to taking cash out tax free, it may never happen again
     
  15. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    great timing!
     
  16. Stoic Phoenix

    Stoic Phoenix Well-Known Member Silver Stacker

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    Ive always thought Super was too tasty a carrot for the govt at some stage before my retirement (20 years away) to keep their thieving mitts away from.
    I welcome the chance to draw out 20k and use it how I want to use it over the next few months.
     
  17. kilo

    kilo Active Member Silver Stacker

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    To me red flags were everywhere so figured I would be more comfortable taking the sideline for 12 months and watch what happens.

    In hindsight I jumped a bit too soon but I’m a conservative investor and it’s worked out ok so far.
     
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  18. kilo

    kilo Active Member Silver Stacker

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    Compulsory Superannuation is the cash cow of the Australian Government, not just Australia but all countries with similar policy.
     
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  19. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    The ECB (for EU nations) and IMF (everyone else) would move heaven and earth to avoid sovereign defaults of nations as that provides them with ability to move in and effectively take control by bailing out those countries and imposing their economic policies on them.

    Plenty of States / Countries should default as they are essentially bankrupt and would never be able to repay their debts (without selling the entire country as a job lot) but as Govt's are not subject to laws that companies / you and I are subject too, they can just carry on borrowing / printing money till the lights go out the natives come looking for them with rope in hand. Some smaller third world Asian or Central / South American countries may default but that's par for the course with certain nations. Will a major western nation default...probably not unless all western nations do it in a unified way thus effectively wiping all debt and starting again...the "Great Debt Jubilee" some people talk of.

    Given the interconnected nature of the banks globally, and this has been discussed in another thread re Deutsche Bank, the failure of major global bank would have untold knock-on effects to both credit availability and others banks balance sheets who hold assets of that bank as an investment on their balance sheet....If we woke up tomorrow (in Sydney) to hear that say Deutsche Bank had finally fallen over (and no ECB / German Govt bailout), the mkt caps of banks all over the world would move close to zero as investors rush to dump bank stocks as the contagion spreads as various markets open for trading (then close quickly due to massive decline in market indexes. Then the banks wouldn't open that day, people will panic and the whole economic system crashes into a wall at lightening speed. Western Australia would still be asleep and it's be all over.
     
  20. kilo

    kilo Active Member Silver Stacker

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    Couldn’t agree more
     

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