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Market update

MilitarySuper’s investment strategy and options are designed to diversify investments across asset classes, such as listed Australian and international shares, cash, bonds, property and alternative (unlisted) investments such as private equity, hedge funds and infrastructure.

As advised in our Market Update of 21 August 2009, the continuing financial crisis has over the course of the past 12-18 months negatively affected to varying degree all but MilitarySuper’s Cash option. While the crisis initially most affected listed markets, which have subsequently rallied from their lows in March 2009, over the course of 2009 the continuing difficult business and economic conditions being experienced around the world have resulted in a generally downward trend in the valuations of a number of MilitarySuper’s alternative assets.

The Fund’s property and alternative assets are typically re-valued either monthly or in most cases quarterly. As such, the valuations of these investments tend to lag the valuations of listed market assets which are updated daily, such as Australian and international share markets.

The valuations of property and alternative assets such as infrastructure and some private equity funds generally reflect the economic, trade and industry conditions and outlook relevant to those investment’s specific markets.

The Board has recently received and acted on a number of updated valuations across its property and alternative investment portfolios for the quarter to 30 September 2009. While we are pleased to report that some of these assets have increased in value over this short period, it is the case that some have also fallen in value. This has particularly been the case for some of the Fund’s commercial property investments due to the continuing difficult environment for this asset class.

As a result, all MilitarySuper investment option unit prices, except Cash, have moderately declined as at 14 October 2009.

The Board recognises that the most recent write downs in the carrying value of some of the Fund’s property and alternative assets are disappointing. It remains the Board’s considered view that the vast majority of the Fund’s alternative investment program assets remain fundamentally sound and in keeping with the Board’s longer-term investment strategy, which continues to remain based on improving economic activity driving long-term wealth creation.

Further details relating to the Fund’s investment performance and other related information will continue to be provided to Members through the annual and mid year reports and periodic website updates.