Crown entity the Accident Compensation Corporation has an investment fund aimed at making returns to cover the cost of future injury claims and keep a lid on the cost of levies paid. Photo / RNZ
Crown entity the Accident Compensation Corporation has an investment fund aimed at making returns to cover the cost of future injury claims and keep a lid on the cost of levies paid. Photo / RNZ
The Accident Compensation Corporation investment fund’s near-$1 billion holding in United States technology stocks and sale of Kiwibank helped boost its performance and plug the Crown entity’s multimillion-dollar deficit in the financial year just ended.
Its investment function, used to hedge against the future cost of injury claims, increased itstotal assets under management by 2.4 per cent to $46.9 billion in the 2023 financial year.
However, that was less than the $51.5b liability of outstanding claims over their injury lifetime, which rose $1.3b in the year.
It accepted just shy of 2 million claims in the year, up from 1.8 million the year before. Thousands of claims were related to Cyclone Gabrielle and maternal birth injuries following its addition to the health insurance scheme.
The broader ACC entity made a net accounting surplus of $911 million, compared to the previous year’s $49m hole.
Focusing on the investment fund, it made a 7.07 per cent return on investments after costs, lifting it out of the previous year’s negative 9.36 per cent return.
That was largely down to a boost in international equities and significant downside protection in inflation-linked bonds.
But the improved return was behind its benchmark return of 7.27 per cent, due to underperformance by external investment managers.
“This mismatch was a deliberate choice ... But did not pay off,” ACC chief investment officer Paul Dyer wrote in the fund’s annual report released on Thursday morning.
Dyer said while its equity returns were satisfactory, and as high as 18 per cent in the United States market, the growth was not broad-based.
“A small number of large stocks, mainly tech-based, accounted for much of the gain. How sustainable these returns prove to be will only be apparent with time.”
The ACC fund’s top two equity holdings are $420m worth of Microsoft shares and $326m worth of shares in Alphabet (Google’s parent). Its ninth-largest holding is Apple, worth $204m.
The ACC investment fund holds $950m worth of equity in Microsoft, Apple and Alphabet.
The rest of its top equity holdings were mostly New Zealand stocks, with a $322m position in Infratil being its largest.
The fund owns almost 3 per cent of the entire New Zealand Stock Exchange, or 4.5 per cent if you exclude the Crown’s strategic holdings in energy companies.
Its private equity returns were in the double digits at 10 per cent for the year, but its holdings in infrastructure and property, including a lot of listed property, suffered.
“Returns were close to zero for the year. This was a disappointing outcome.”
The fund’s returns have averaged 9.31 per cent per year since 1992.
Divestments
In the year ACC Investments notably divested from Kiwibank’s parent, Kiwi Group Holdings, selling its 22 per cent stake back to the Crown for $464m.
The deal that valued the bank at $2.1b resulted in a 62 per cent return on the ACC’s initial investment in 2016.
It also sold its ownership in solarZero to global wealth manager BlackRock. The report did not reveal the price tag earned from the sale, only citing a “strong return on our original investment”.
“BlackRock can provide SolarZero with the capital it needs to reach its potential,” the report read.
SolarZero installs solar panels on homes for no upfront cost. Photo / File
The fund has to date moved about $18b worth of its holdings in New Zealand, Australian and global stocks, to low-carbon equities benchmarks, reducing the carbon intensity of its equities portfolio by 60 per cent compared to 2019, according to the report. It’s targeting a 65 per cent reduction by 2030.
“Some may ask why we don’t just exit fossil fuel producers now,” the report read.
“Our answer is that the response to climate change involves all of us and reducing the carbon intensity of our investments means we hold users of fossil fuels to account as much as producers.”
Investments
With its focus on carbon reduction, the fund invested in Lodestone Energy, which was developing five solar farms in the upper North Island.
It also invested in The Pure Food Co, a manufacturer of food for older people, to help it expand in Australia and Europe.
Like many asset managers, it’s had its eyes on infrastructure, with a decision made in the year to finance the property developer behind a 10-storey apartment building leased to the University of Auckland for student accommodation.
The developer, Ergon Properties, is partly owned by Sistema founder and multi-millionaire Brendan Lindsay, according to Companies Office records.
Brendan Lindsay sold his plastic storage business Sistema to America's Newell for $660 million in 2016. Photo / Steven McNicholl
The Carlaw Park Student Village Ergon built in Parnell houses close to 1000 students and cost $250m to build.
The ACC fund has previously invested in roading infrastructure through public-private partnerships, including Wellington’s Transmission Gully and the Puhoi-to-Warkworth motorway that opened this year.
Watch an interview with the ACC’s chief investment officer Paul Dyer on Markets with Madison this coming Monday on nzherald.co.nz.
Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
