The performance gap between industry superannuation funds and their retail counterparts is likely to narrow as the economy – and property values – deteriorate, experts argue.

In 2008, the average super fund lost a record 22 per cent of its value, but industry funds outperformed master trusts by 6 percentage points, up from about 2 percentage points in previous years.

Research firm Chant West attributed the industry funds relative success to their large holdings of unlisted assets, reigniting concerns that not-for-profit vehicles are failing properly to revalue investments in unlisted assets such as property, hedge funds and infrastructure.

Despite a 39 per cent plunge in the benchmark S&P/ASX 200 and a 57 per cent fall in the local property index in 2008, the net asset value of unlisted property funds was unchanged, while infrastructure assets rose slightly.

While the average unlisted property fund did decline 5 per cent in three months to December, the director of investment strategy at Russell Investment Andrew Lill, predicts the value of unlisted property assets could fall by up to 30 per cent by June this year.

Listed assets are unlikely to fall by the same degree, which should mean that equity-laden master trusts should perform relatively better.

Chant West principal Warren Chant said he thought the performance gap between the master trusts and industry funds would close.

“It has been a terrific strategy…but over the next twelve months industry funds outperformance could approach the long-term trend line”.

AustralianSuper deputy chief executive Mark Delaney agreed that valuations for unlisted assets were likely to fall further. “The trend is for lower valuations, particularly given the likelihood of a very weak economic condition over the next six months” he said. “I wouldn’t expect the 6 percentage point gap to be sustained.”

Industry funds invest an average of 25 per cent in unlisted assets, against 7 per cent for master trusts, according to Chant West.

Mr Lill also warned that industry funds dynamic asset allocation strategy had not yet stood the test of a complete investment cycle.

Industry experts reject suggestions that the Australian Prudential Regulation Authority should issue guidelines about the level of unlisted assets held by a retirement fund.

“We certainly don’t believe there should be any guidelines imposed on funds”, the head of corporate superannuation at AMP, Greg Healy told a round table for the AFR. “We have exposure of generally 10 to 15 per cent at any one time to illiquids”.

However, Mr Chant argued that between 20 per cent and 30 per cent was an appropriate level, given funds’ need for liquidity to cater for members who switch investment options or move to a different fund.

Mr Delaney noted that valuation and liquidity issues were not restricted to unlisted assets such as bridges, roads, office blocks and tunnels.

“It’s interesting that unlisted assets is code for illiquid assets” he said.

“In today’s environment, what is an illiquid asset? In fixed interest, a fund manager told me the only bonds you can really sell on the market are government bonds. All mortgage bonds, all corporate debt and all super nationals are illiquid for all intents and purposes, and I suspect a lot of your shares are illiquid too if you’re not going to sell them in reasonable volume.”

“It’s not clear if unlisted assets have any less liquidity than listed assets in the current environment”.