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Risk and Return of Illiquid Investments: A Trade-off for Superannuation Funds Offering Transferable Accounts

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  • James R. Cummings
  • Katrina Ellis

Abstract

type="main" xml:id="ecor12209-abs-0001"> This paper examines the pattern of investment by Australian defined-contribution superannuation funds in illiquid assets, using a unique but confidential database. Not-for-profit funds allocate more of their portfolios to illiquid assets, on average, than retail funds. Their allocations reflect fund size, net cash inflows and member age – factors relevant to a fund's liquidity requirements. Furthermore, the allocations reflect the extent of the fund's in-house investment management. In contrast, there is no clear relationship between these factors and allocations by retail funds. Funds with more illiquid investments experience investment returns that are commensurate with the non-diversifiable risk these assets contribute to their overall portfolios.

Suggested Citation

  • James R. Cummings & Katrina Ellis, 2015. "Risk and Return of Illiquid Investments: A Trade-off for Superannuation Funds Offering Transferable Accounts," The Economic Record, The Economic Society of Australia, vol. 91(295), pages 463-476, December.
    • Handle: RePEc:bla:ecorec:v:91:y:2015:i:295:p:463-476
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    File URL: http://hdl.handle.net/10.1111/ecor.2015.91.issue-295
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    Cited by:

    1. Bateman, Hazel & Dobrescu, Loretti I. & Liu, Junhao & Newell, Ben R. & Thorp, Susan, 2023. "Determinants of early-access to retirement savings: Lessons from the COVID-19 pandemic," The Journal of the Economics of Ageing, Elsevier, vol. 24(C).
    2. Jin Sug Yang & Anna Bedford & Martin Bugeja, 2023. "Director expertise and co‐option in industry superannuation funds?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S1), pages 1249-1283, April.

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