apr-11.pdf (2.07 MB) - Crown Ownership Monitoring Unit

Fund composition and performanceACC’s investment funds reflect the nature of itsliabilities. Each account’s investment funds are splitbetween an investment in ACC’s short-term “cashportfolio”, which is used to meet near-term expenditurerequirements, and its own longer-term “reservesportfolio”, which is set aside to meet the future costs ofexisting claims.ACC’s asset base remains well below its liabilities becauseof the legacy costs incurred prior to 1999 or 2001.Approximately 65% of the reserves are invested in cashand New Zealand and overseas bonds, and the rest acombination of New Zealand and overseas equities,property and infrastructure.In 2010/11 the aggregated ACC accounts returned 12.4%compared with the aggregate passive benchmark returnof 11.2%. Outperformance over the year resulted fromstrong relative performance in the New Zealand bond andAustralian equity portfolios.ACC’s investment objective is for its long-term returns tobe 0.5% per annum above the weighted average marketbenchmark of each of its individual accounts. ACC hasconsistently achieved this objective over the longer term.Its five-year volatility (measured by the standard deviationof quarterly returns) is marginally ahead of the passiveportfolio, suggesting that some of this outperformance isbecause ACC is taking on additional risk. In general thisrisk appears to have been rewarded by additional returnrelative to its passive benchmark.ACC manages a significant proportion of the assetsin-house on an active basis. This provides ACC withsignificant cost advantages over funds that contractexternal fund managers.At year end the outstanding claims liability (OCL) stoodat $24.5 billion compared with net assets of $17.8 billion(including investment assets and cash of $17.3 billion).The Accident Compensation Act 2001 requires that thoseaccounts funded by levy collection, the Work, MotorVehicle and Earners’ Accounts, be fully funded by 2018/19.At year end these accounts represented $17.2 billion of theOCL and held reserves portfolios of $13.4 billion.page | 53