The Accident Compensation Commission (ACC) fund outperformed all but two of its portfolio benchmarks over the 12 months to June 30, its latest accounts show, with only Australian equities and Australasian property/infrastructure blotting its perfect record.
According to the ACC annual report published last week, the $31.4 billion fund returned 14.5 per cent in the year ending June 30 compared to its self-constructed benchmark of 13.9 per cent.
After investment costs of 0.137 per cent and offshore withholding tax, the ACC fund outperformed its benchmark by 0.49 per cent, the report says.
But while its internally-managed portfolios largely shone during the year, ACC’s outsourced equity managers took some of the gloss off returns.
The fund’s almost $5.6 billion global shares portfolio returned 31.4 per cent in the year versus 31.1 per cent for the benchmark. The ACC report says the 0.3 per cent outperformance was largely due to “how we allocated the global equity asset class between portfolios (favouring portfolios that were focused on growth and lower risk companies, whilst underweighting emerging markets)”.
“ACC’s internally managed global equity portfolio outperformed its benchmarks, but the performance of externally managed portfolios was mixed (with a slightly negative impact on overall relative performance),” the report says.
As at June 30, ACC external international share managers were: Intermede Investment Partners; Marathon Asset Management; MFS Institutional Advisors; Alliance Bernstein Investment Management; and, Orbis Investment Management
Global equities constitute about 18 per cent of the total ACC portfolio, of which 15.3 per cent is managed internally.
In Australian equities – which is split about 70/30 between in-house and external managers – the ACC fund fell short by 0.8 per cent of its benchmark 10.1 per cent return, before any currency hedging effect.
“This was due to disappointing performances from an externally managed resource equity portfolio and from an internally managed portfolio of large capitalisation industrial equities,” ACC says.
The ACC previously reported it had Australian small-cap mandates with Paradice Investment Management and Independent Asset Management.
Over the year, asset allocation decisions – including overweight currency exposures and changes to bond/equity allocations -added 0.17 per cent to the fund’s performance, the ACC report says.
“These asset allocation gains were partly offset by a negative impact from ACC favouring inflation indexed bonds and cash ahead of conventional bonds,” the report says.
However, both the ACC’s internally-managed NZ bond portfolios (which in total amount to over $18 billion) and its $938 million global fixed income portfolio (managed by PIMCO) outperformed their respective benchmarks – the latter by 1.5 per cent.
Like the NZ Superannuation Fund, the ACC fund is also looking to boost its in-house investment capability.
“We intend to increase selectively the resourcing of the investment team during 2015/16,” an ACC service agreement published this July says. “In particular we will continue to expand the teams responsible for direct (unlisted) investments and the internally managed global equity portfolio.”
In June the ACC hired Carl Blanchard to the newly-created position of head of private investments.
The ACC’s $147 million NZ private equity portfolio and its $1.16 billion Australasian property/infrastructure allocation returned 8.3 per cent and 16.7 per cent respectively. While the fund has no explicit private equity benchmark, the property/infrastructure portfolio underperformed the benchmark return of 20.3 per cent over the year.
As well as local private equity managers Pencarrow, Waterman and Direct Capital, ACC has appointed three Australian firms in that asset class: Allegro, Archer and Wolseley.
“ACC’s private equity investments showed lower returns than the listed equity market,” the annual report says. “Like the property and infrastructure investments, the reported returns from private equity depend on the valuations assigned to unlisted investments, and there can be considerable year-to-year dispersion between changes in these valuations and changes in the listed equity market.”
In a release, ACC board chair, Paula Rebstock, said the no-fault accident compensation scheme was now fully-funded after recording a $1.6 billion surplus over the financial year.
“The surplus means there is now no gap between the scheme’s financial assets and claims liabilities. This means the Scheme has achieved full funding – it has sufficient funds to meet the future costs of injuries that have already occurred,” Rebstock said.
From this year on, the ACC would no longer have to top-up the investment fund, the report says.
“… future growth in ACC’s investment portfolios should be funded entirely out of investment income.
“However, if bond yields were to decline further, there is a risk that future investment income could be insufficient to keep up with the growth in ACC’s claims obligations.