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Responsibility needed on liquidity risk
Superannuation funds need to establish a group of people tasked with the responsibility of looking after capital and liquidity risk in their funds, according to Troy Rieck, the managing director, capital markets, at QIC Asset Management.
At a presentation at last week’s Association of Superannuation Funds of Australia (ASFA) conference, Rieck said the financial crisis had revealed a gap in the way super funds structured and ran their fund, by focusing more on different sectors than on its overall liquidity health.
Any group established by the super fund should be tasked with managing all fund level risks including managing investment exposures, currency risk, counterparty risk management and risk management overlay, he said.
“In the corporate world, you delegate these tasks to the treasury function ... I don’t see out there in the context of general superannuation many funds taking this to what I think is the natural level of evolution,” he said.
Rieck warned that super funds should not leave it up to asset managers to manage liquidity, as managers simply did not have access to data on the super fund’s uncommitted liquidity and capital, member cash flows or switching, and derivative positions.
Managing unrewarded risk that could be harmful to the fund will allow the fund to take on more rewarded risk that would add value to the fund, he said.
However, he warned trustees against taking on unwanted risk to their funds even if it added value to their fund.
Funds could also undertake prudent and sensible use of derivatives to significantly increase their ability to deal with liquidity risk, as well as generating capacity to deal with tax efficiency and cost efficiency, he said.
AUTHOR
Mike Taylor
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