The Accident Compensation Corporation (ACC) is awaiting the findings of a due diligence report before formally handing over a $1.5 billion global equities portfolio to former chief investment officer, Nicholas Bagall.
Bagnall said the Mercer Sentinel review of Te Ahumairangi Investment Management (TAIM), the wholesale fund management shop he opened last year, was probably six weeks away from completion.
“If the Mercer report is positive we should be able to officially get going in July,” he said.
In the interim, Bagnall continues to run the ACC in-house global shares portfolio using the government fund’s existing systems and brokerage relationships.
He confirmed TAIM had just inked deals with external providers that, for now, remain anonymous.
Under the terms of the arrangement, TAIM has a 12-month exclusive contract to run the ACC money (dating from the time it formally switches across) before opening up to other clients.
Bagnall launched TAIM last November after 26 years at the helm of the ACC fund, bringing on former colleague, Ian Graham, as a senior analyst.
Subsequently, TAIM has secured lodgings in Wellington while expanding staff numbers to five, including recently hiring Jack Crowley as an analyst from broking house Jarden. Another ex Jarden staffer, Helen Stevens, is TAIM head of operations.
Richard Bodman and Stephen Montgomery also joined Bagnall on the board as well as taking minority stakes in the start-up fund manager.
Early in June, Montgomery was appointed as an external member of the ACC investment committee.
“We have put conflict of interest process in place for Stephen since he joined the ACC committee,” Bagnall said.
And last week the ACC fund made a major investment call that will ultimately funnel down to the TAIM portfolio.
The approximately $46 billion fund set an ambitious target of cutting the ‘carbon intensity’ of its portfolio in half by 2030. As reported here, the ACC recently adjusted its fossil fuel exclusion policy in a move that saw it sell-down 54 mainly Australian stocks.
While the government fund has gradually whittled down its carbon intensity by 2 per cent each year over the last decade, an ACC spokesperson said it would “also be necessary to make significant changes to the portfolio mix” to meet the new goal.
“Achieving a 50 percent reduction in the carbon intensity of our investment portfolio by 2030 is a challenging target,” the spokesperson said.
The new carbon-conscious ACC investment policy would involve tilting the equities portfolio away from carbon-intensive industries and bulking up on low-emission companies
“We are undertaking further detailed work on this with leading global consultant Russell Investments, looking at what other large funds are doing, and how we can best implement decarbonisation,” the spokesperson said.
The decarbonisation process may also see the ACC fund revising its equity performance yardstick,
“We are undertaking further work on what benchmarks would work best for us,” the spokesperson said.
The ACC came under political pressure last year to divest its fossil fuel holdings that included a hurry-up message from the government review committee.
“If the Government wishes to direct ACC to [divest fossil fuel stocks], it is entirely within its power under the Crown Entities Act 2019,” the parliamentary committee said last November.
But the fund has made significant progress over the last decade in reducing carbon intensity among its share investments.
“Since 2009 the equity function of ACC’s investments team has recorded a 19 percent reduction in carbon intensity while increasing the size of the fund in that time from $10 billion to $46 billion,” the spokesperson said.
The preferred ACC portfolio carbon intensity (PCI) measure includes both so-called Scope 1 and Scope 2 metrics that record direct and indirect emissions, respectively.
“A key benefit of this measure is that it is not distorted by ACC’s own portfolio cashflows,” the spokesperson said. “For example, cash outflows (as ACC is currently experiencing) could appear to show a reduction in emissions, even if portfolio weights had not changed.”
The fund decarbonisation push is part of an ACC organisation-wide effort to reduce emissions in line with the Zero Carbon Act, which passed into NZ law last year, ACC chair Paula Rebstock said in a release last week.
“As stewards of the ACC scheme, and by placing a focus on environmental sustainability and reducing carbon emissions, we’re demonstrating our obligation to the wellbeing of future generations,” Rebstock said.
She said further details of specific ACC climate change polices would be released in coming months.