Here's a couple of sectors which are feeling the pain but yet to disclose it: industry funds and private equity.
 
While Australians have stood by helplessly watching the value of their superannuation erode this year, those with their savings in industry funds appear to have fared better than their compatriots in retail master trusts.

The difference lies mostly in so-called ''alternative investments''.

While the preponderance of listed equities held by super funds has ensured their performance has taken a battering alongside the turmoil in the stockmarket, industry funds have, in most cases, not had to write down the value of their alternative, or unlisted, investments. Ergo: better performance.

It's an accounting issue, and it has thrown up a maelstrom of attacks from super funds and their proxies stirred with paranoia from the industry funds themselves.

At the epicentre of the storm is financial planning group, Dixon Advisory, which popped off a missive to its 16,000 clients last month - many of whose retirement savings were in industry funds - warning them that the industry funds' weightings in unlisted and illiquid assets such as infrastructure were overvalued by as much as 30%.

Dixon has a point and APRA is monitoring developments closely, its nightmare scenario being a run on industry funds.
Thanks to deregulation that is now a possibility, though it should be said that if industry funds are not forced to sell, they are in a good position with solid long-term investments.

Illiquid assets

The rub is that if they did have to sell, big-ticket infrastructure assets are highly illiquid - look no further than Macquarie Infrastructure Group's proposed sale of M7 toll-road to itself (a quality asset, no buyers, valuation too high) - and the losses would be horrendous.

A freeze on redemptions, a la mortgage funds, would not be out of the question.

So there is some bitching going down.

Retail master trusts hold on average a mere 1% in alternative investments while industry funds hold an average of 12%, and for some such as MTAA, the proportion is far higher.

A few points: although the industry funds could perhaps write down the value of their alternative investments to better reflect the devaluation of assets globally, they are also in the cherished position of having a good deal of diversification away from company earnings and stock prices which are taking a pounding.

In the longer term they are well-placed, unless the liquidity time-bomb explodes on them.

Private equity

The muscle-boys of the boom - private equity - are in a good deal of bother. Sheer leverage is the problem.

The privateers all report quarterly valuations to their investors using AVCAL (Australian Private Equity & Venture Capital Association Ltd) valuation guidelines.  

It is not going to be a merry Christmas this year for investors when they open their December quarter valuation report.

AVCAL guidelines essentially require that all assets get valued using listed multiple comparisons.

In many sectors, listed ''comps'' have halved from around 10-times to 5-times EBITDA. The problem is that most private equity assets are geared by five times.

So in many cases even the good assets - those whose earnings are on track with the business plan - have zero equity value. Then there are the bad assets, the crazy deals - we can deal with these in detail later.

The key to survival for private equity - and in some cases it will be too late already - is how quickly multiples rebound and how far they rebound.

Common sense would suggest however that while multiples might expand from the presently depressed levels, they will stay below the heights reached in 2006 for many years to come.

For the privateers then the game is about staying in business - not having to hand back their assets to the bankers. Investors, who rank well below the banks, will be lucky to get their money back.

Fortunately for the privateers most of their funds are ``closed end'' at ten  years. Further to the pain in retail investment-land many super funds, both retail and industry (industry hold higher weightings), the demise of private equity will smash their returns.

mwest@fairfax.com.au
BusinessDay