The new wholesale fund management firm launched by Accident Compensation Corporation (ACC) investment chief, Nicholas Bagnall, has named two independent directors.
Both Richard Bodman and Stephen Montgomery joined the Te Ahumairangi Investment Management (TAIM) board last month as Bagnall prepares the business to assume an almost $1.6 billion ACC global equities mandate.
Bodman was First NZ Capital (now Jarden) head of group compliance from 1998 until October 2015.
According to his LinkedIn profile, the role covered compliance for the firm’s “institutional sales and trading, investment research, retail wealth management, investment banking, wholesale and retail funds management (the Harbour Asset Management business), and related ancillary services”.
Since 2017 Bodman has picked up several independent director gigs including with Forsyth Barr and the NZX.
Meanwhile, Montgomery is director and co-founder of Auckland-based boutique absolute return manager, Aspiring Asset Management.
Before launching the-now $450 million Aspiring fund in 2006 he served 13 years as equities portfolio manager with the ACC.
Bagnall quit as chief investment officer for the $45 billion plus ACC fund last November following a 26-year career with the Crown financial entity.
However, his exit – prompted in part by a proposed ACC management shake-up – included a deal for the-then unformed TAIM to run the global equities portfolio he previously managed in-house.
Bagnall said last year that TAIM should be fully-operational by March this year.
In the interim, he would continue to manage the international shares portfolio using ACC resources, a spokesperson for the government fund said in November.
“For operational reasons – to continuously operate the portfolio – we need a transition period,” the ACC spokesperson said. “The intention is to keep this as short as possible before we transition to Te Ahumairangi Investment Management.”
Over the 2018/19 financial year the ACC fund reported a rare under-benchmark performance despite achieving a nominal return some $3.5 billion above budget.
During the 12 months to the end of June 2019, the bond-heavy ACC fund returned 13.1 per cent against 13.8 per cent for the composite benchmark.
But the $5.1 billion investment result – against a forecast $1.5 billion – was primarily due to falling interest rates.
According to the just-released ACC 2019 ‘Financial condition report’, it was “unclear how long rates will remain at this level or even if they’ll continue to fall”.
“Continued low interest rates will reduce future expected investment income,” the report says.
“The chance of negative investment returns remains relatively unchanged, in that we expect a negative return about one year in four. But with lower expected investment returns from fixed-interest assets, there’s less income buffer to absorb negative shocks from the equity market. This will slightly increase the chance to ACC of a negative total investment return.”
Rock-bottom interest rates also upended the liabilities calculations for the ACC scheme, pushing it deep into deficit territory.
“Falling interest rates, higher-than-expected claim costs and underfunding contributed to the financial pressure,” the ACC document says. “This year the Scheme recorded a $9,024 million deficit against a budgeted deficit of $392 million.”
While the ACC boasted fully-funded status a few years ago with the annual government top-ups to the investment fund ceasing, the scheme was now facing renewed financial pressure.
“Lower interest rates have resulted in lower funding positions at 30 June 2019, so it’s very likely that levies and appropriations will need to increase significantly,” the ACC report says.
ACC levies, which have been falling in recent years, may jump by “$2.3 billion (49%), before capping and management response… in the next levy/appropriation round”.