The Accident Compensation Commission’s (ACC) roughly quarter share of Kiwibank parent entity now represents its single biggest equity exposure, the group’s just-published annual report reveals.
According to the ACC report released last week, the Crown entity’s investment fund valued its stake in Kiwi Group Holdings – which also owns Kiwi Wealth – at more than $285 million, about $90 million more than its second-largest investment, Auckland Airport.
“Excluding one investment in a diversified global equity fund [Orbis Investment Management], ACC holds just three equity investments that individually represent more than 0.5% of the reserves portfolio (ie $183.2 million),” the ACC report says.
As at June 30 this year fund had invested about $515 million in the Orbis global shares product, representing the bulk of ACC’s $610 million spread across five equity “pooled investment vehicles”.
The ACC global equity manager roster includes mandates with Arrowstreet, Harding Loevner, CPH (part of AllianceBernstein), Intermede, Marathon and Wells Capital.
Most of ACC’s external offshore shares managers beat their respective benchmarks over the year, the report says. Representing about 20 per cent of the total $6.2 billion international equities allocation, the fund’s in-house global shares portfolio, managed by chief investment officer, Nicholas Bagnall, also outperformed.
Overall, global equities returned 17 per cent for the ACC during the 12 months to June 30 – the top-performing asset class for the fund. The report notes global shares would have to fall by 9 per cent before the ACC fund itself turned negative.
While ACC’s internal team carved out good results for its majority share of the fund’s Australasian shares allocation, the pair of “externally managed Australian equity portfolios did, however, underperform their benchmarks”. ACC has an Australian small cap mandate with Paradice, and an allocation to resource shares through Independent Asset Management.
Across its entire portfolio, which is heavily-weighted to fixed income, the ACC reported its 22nd consecutive above-benchmark result with only the $8.3 billion NZ index-linked bond portfolio falling into the red (down 0.4 per cent) over the year (excluding a small loss on an interest rate overlay strategy).
“ACC’s reserves portfolios delivered a weighted average return of 5.80% (net 5.70%), outperforming our market-based benchmarks by 1.49%,” the report says. “The net outperformance of our benchmarks was 1.35% after adjusting for investment costs and taxes.
“… In our assessment, ACC’s reserves portfolios took marginally less risk than the benchmark position for most of 2016/17, principally due to a decision to hold a lower-than-benchmark allocation to equity markets, and the reserves portfolios therefore achieved significant outperformance on a risk-adjusted basis.”
As at June 30 this year ACC managed about $36.7 billion, putting it in front by a nose as NZ’s largest fund manager. According to the most recent figures, the New Zealand Superannuation Fund (NZS) manages about $36.4 billion. In a reversal of recent history, however, the NZS is due for a top-up from taxpayers under a promise from the new Labour-led government to resume contributions to the fund within its first 100 days in office.
Until the 2014/15 year, the ACC fund was receiving capital injections on its way achieving ‘fully-funded’ status for the comprehensive national accident insurance scheme. The ACC has projected annual outlays to cover insurance claims of about 4 per cent of assets under management and long-term expected returns of roughly 5 per cent.
“Given the two-sided risks around both of these forecasts, there remains a significant probability that future investment income could be insufficient to match the long-term growth in ACC’s claims liabilities,” the report says.
The ACC, which has an investment team of about 30, shelled out 0.14 per cent on fund costs, including external manager fees, during the latest annual period – 0.01 per cent under budget.
“We have also recently started using global bond futures to adjust our overall exposure to interest rates,” the report says. “This can be transactionally cheaper than either allocating funds in or out of bond portfolios or making changes to our New Zealand interest rate derivative position.”
Elsewhere, the ACC says it was “developing more formal mechanisms to monitor and evaluate the ongoing creditworthiness of the Australasian banking system and custodians”.