Property fund freezes part of AustralianSuper's crisis contingency plans

The nation’s largest super fund, the $140 billion AustralianSuper, has unveiled a contingency plan warning members it will freeze property funds for up to two years in the event of a crisis.

AustralianSuper will also prevent members from investing more than 70% of their savings in its property portfolio option, to which investors have flocked in recent years chasing high returns.

The fund has changed its rules, giving it the right to freeze any attempts at withdrawing savings from the $1.7 billion property ­option, prohibit the switching of funds out of the option, and stopping any new contributions into the option for a period of up to two years “in exceptional circumstances in response to a market stress event”.

The Australian reported the "surprise policy changes", which take effect from November 19, rank as the first sizeable industry fund to make the change.

It noted UK market panic triggered by the Brexit vote in 2016 saw a financial volatility, where UK property funds, such as those run by Aberdeen Asset Management, Aviva Investors and Standard Life Investments, were unable to sell the underlying commercial property assets quickly enough to meet demand for investors pulling their funds.

Then, when the funds were unfrozen, property values had fallen to such an extent that investor savings were in jeopardy.

AustralianSuper group executive Paul Schroder said the changes were being made to “manage risk and protect all members’ interests” after consulting members.

“This is a prudent step designed to ensure all members can continue to exercise investment choice over the long term and in all market conditions,” Schroder said.

“The fund is committed to the property option but these changes were necessary to ensure other members are not disadvantaged in the event of a significant ­property market correction in the future.”

AustralianSuper surveyed more than 1000 members who were invested in property about the types of rules they would be most willing to accept.

“Direct property assets can’t be easily bought and sold at short notice,” AustralianSuper told its members in policy update,” Schroder said. 

“If the market experiences a stress event which causes lots of investors to sell property assets at the same time, or makes it more difficult for investors to finance transactions, we may not be able to find willing buyers at reasonable prices.

“Having the ability to freeze the option provides a safeguard by allowing some time for the market to recover before selling property assets.”