Finance Your Super Hostplus boosts cash holdings as pandemic withdrawals hit reserves

Hostplus boosts cash holdings as pandemic withdrawals hit reserves

HostPlus CEO David Elia says higher cash holdings mean lower returns.
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Major industry superannuation fund Hostplus has put more of its funds into cash in response to the government’s early super access scheme – potentially leading to lower returns for members.

Hostplus, which has a high proportion of members working in the heavily affected hospitality sector, had 0 per cent of its balanced default fund allocated to cash at the beginning of the year.

But that all changed after the fund’s board conducted a review.

“Effective 19 June 2020, Hostplus increased the Balanced option’s strategic allocation to the ‘Cash’ asset class from 0 per cent to 5 per cent, while reducing the long-term allocation to the ‘Alternatives’ asset class from 8 per cent to 5 per cent and the ‘Equities’ asset class from 44 per cent to 42 per cent,” the fund replied to The New Daily’s questions in a statement.
“The fund also operates ranges within these long-term strategic asset allocation settings that afford the fund the opportunity to actively rebalance and adjust asset allocations tactically within these ranges to maximise portfolio returns while keeping market risk to a minimum.”

Like a number of big funds, Hostplus was hit hard by the early withdrawal arrangements for people under financial pressure because of the pandemic.

To date, more than $27 billion has been withdrawn from workers’ retirement savings.

That is how much the government expected to be withdrawn over the life of the scheme, which ends on September 24.

Hospitality workers have been hit hard by the pandemic. Photo: Getty

Chant West research chief Ian Fryer said there were two reasons why Hostplus held no cash before the pandemic.

“They had a very strong cash flow from working members and some of their infrastructure-type assets also had reliable cash flow,” Mr Fryer said.

Shock move

However, the early super access scheme was unexpected and has forced super funds into rethinking their investments.

“Previously, there was no thought that the government would allow people to take money out of super but now they have,” Mr Fryer said.

Hostplus has also slightly reduced its exposure to equities (shares), from 44 per cent to 42 per cent, and its exposure to alternative assets, from 8 per cent to 5 per cent.

But that doesn’t mean the fund is adopting a more conservative approach.

“It allows them to have greater access to liquidity in the future if they need it,” Mr Fryer said.

Returns hit

CEO of Hostplus David Elia told the Australian Financial Review in May the early super access scheme would hurt members’ financial returns by forcing funds to hold more cash.

“Superannuation funds like ourselves will now need to effectively factor in sovereign risk in terms of our investment strategies,” Mr Elia said.

“And what that ultimately means is higher levels of cash and it means lower returns given the current market environment.”

Hostplus was hard hit by early withdrawals, with a large cohort of mostly young members withdrawing $1.5 billion under the scheme.

That makes it one of the top 10 funds for the amount of withdrawals.

Alongside Hostplus, Sunsuper ($1.6 billion), AustralianSuper ($2.2 billion), Cbus ($980 million), and Rest ($1.5 billion) have also all experienced big withdrawal figures so far.

For-profit retail funds, such as BT, ANZ, MLC and Colonial, have also been hit by withdrawals, but all are believed to have paid out less than $1 billion each. Overall, industry funds have accounted for the majority of early withdrawals, at 65 per cent, while retail funds have accounted for 29 per cent.

Across its total $50 billion portfolio, Hostplus now has about $4.9 billion in cash, which accounts for close to 10 per cent of its holdings.

The overall cash holding is larger than the percentage in the balanced option because, in more conservative options, far higher levels of cash are held.

Young people are withdrawing the most

Young members, particularly women, comprise the majority of people making early withdrawals from their superannuation, according to Treasury figures.

HESTA has also released data showing that half of early withdrawals have been made by members under the age of 39,  with many taking out significant percentages of their overall balances.

As a result, funds with lots of young members may experience fewer withdrawals during the second phase of the scheme, which began on July 1 and runs until September 24.

“The larger point is that most people applying for this round of ERS [early withdrawal] are likely to be older, because the younger folks who dominated the first round have probably cleaned out their accounts,” Rainmaker research chief Alex Dunnin told Financial Standard.

The New Daily is owned by Industry Super Holdings