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IPS UN: Inside the Glasshouse

UN Pension Fund Claims its Assets are Safe, Future Secure

The 63rd United Nations Joint Staff Pension Fund Board meeting in Vienna from the 14 - 22 July 2016. UN Photo/Lee Woodyear

NEW YORK, Jul 28 2016 (IPS) - The UN Joint Staff Pension Fund (UNJSPF), whose current assets are estimated at over $54.2 billion, has no plans to “privatize” and is in “solid” financial health, according to the Chief Executive Officer (CEO) of the Fund Sergio Arvizu.

Responding to criticisms by several staff unions, he told IPS the Fund is processing a higher number of retiree cases every month “than any time in history” and the new processing system is complete and fast clearing the backlog of new retiree claims.

Asked about the $1.4 billion currency loss in 2015, which was singled out by a US delegate at the UN’s Administrative and Budgetary Committee last November, Carolyn Boykin, Representative of the Secretary-General (RSG) and head of the Fund’s Investment Management Division, told IPS the loss was due primarily to sales of securities dominated in non-US dollars and also due to the appreciation of the US currency against other major currencies.

Following its 63rd UNJSPF Board meeting in Vienna July 14-22, the 33-member Board re-assured the 126,000 participants and the more than 71,000 retirees and beneficiaries that the Fund “is able to meet its pension and benefit obligations over the long term.”

The Board, which will meet again in July 2017, declared “it is confident the Fund is safe and that the Fund’s future is secure.”

Excerpts taken from written questions sent to Arvizú and Boykin.

IPS: How do you respond to charges made by the Coordinating Committee for International Staff Unions and Associations (CCISUA) that the pension fund has plans to privatize and invest some of its assets in Wall Street banks and hedge funds? Are there any such plans? Or were there any such plans in the recent past?

BOYKIN: The majority of the Fund’s assets are internally managed and are expected to remain that way, since this is a cost effective. External management represents approximately 15% of UNJSPF assets. The majority of this consists of real assets (mostly real estate) and alternative investments (mostly private equity). The Fund does not presently, nor does it plan in the future to invest its assets in Wall Street banks or hedge funds. The allocation to real assets and private equity is scheduled to expand gradually over time, in keeping with the Strategic Asset Allocation policy which was adopted on August 1, 2015.

IPS: While welcoming the Pension Fund’s attempt to diversify its investments to ensure solid returns, the US has urged the fund to take more steps to improve its internal investment process and explore alternatives to mitigate foreign exchange losses, which had increased substantially in 2015. Any comments? And how big was this loss?

BOYKIN: In 2015, there was a $1,489,150,849.32 total currency loss including: (a) $748,086,861 realized loss; and (b) $741,063,987 unrealized loss. The unrealized loss was due to the strength of the US dollar, and this should be recouped when the US dollar declines against other major currencies; (c) the realized loss is due to sales of securities denominated in non-USD and (d) in many cases, these securities were sold at a profit, but currency effect was negative.

IPS: The African Group at the UN has called for the diversification of the Pension Fund’s investments to developing countries, particularly in Africa. What are its current investments in the developing world? And how big?

BOYKIN: For diversification, the figures are: Goal: Comply with the mandate from the General Assembly to increase the geographic diversification of the UNJSPF, particularly in developing countries. And the 2015 results: Investments in developing countries were increased during 2015. The book value (cost) of investments in developing countries increased by US dollars (USD) 336 million: from USD 5.521 billion as of 31 December 2014 to USD 5.857 billion as of 31 December 2015.

Investments by the Fund in global emerging markets have primarily been in public equity. As of 31 December 2015, the Fund had investments in over 100 countries. This included direct securities investments in 41 countries and 24 currencies, along with indirect investments through international institutions and externally managed funds.

IPS: Speaking on behalf of the Group of 77 developing countries, Karen Lingenfelder of South Africa told the Administrative and Budgetary Committee last November that the Group was concerned about recent media reports of possible fraud and would seek clarity, including an update of recent audit or investigations undertaken in that regard.” Considering the high value of the Pension Fund’s investment portfolio, the Group urged the Secretary-General to create “a comprehensive anti-fraud policy to better address fraud risk,” as recommended by the Advisory Committee on Administrative and Budgetary Questions (ACABQ). This proposal has also been supported by the US. What is the pension fund’s reaction to such an anti-fraud policy?

BOYKIN: Upon request by the ACABQ, the Investment Management Division has drafted an Anti-Fraud policy. The RSG agrees that it is important to have such a policy in order to raise awareness as a preventive measure. Many elements of this policy already exist in other policies. The draft has been reviewed by many oversight parties, and will be adopted prior to General Assembly meetings this fall.

IPS: There are accusations of the botched implementation of a new Enterprise Resource Planning system, called IPAS, which has resulted in a situation where newly retiring staff had to wait an average of six months to receive their first pension payment. What is the current status of delayed pensions to retirees?

ARVIZU: The implementation of the new processing system the Integrated Pension Administration System (IPAS) created delays in the processing of new retirees. Especially during the transition and ramp up period of the implementation, we processed too slowly and a backlog was created. We are still struggling to get the waiting period back to the goal of 4 weeks for any new retiree once all of the papers they need are with the Fund. Presently on average it is 6 to 8 weeks, which is too long. The basic transition is complete. The new system represents a powerful foundation on which the Fund can build its business processes over the next years. To speed up things further we are hiring temporary staff and have created a number of ‘task forces’ in order to reach the goal and to take on the an increased number of new retiree cases that we are receiving. Today the Fund is processing a higher number of new retiree cases per month than any time in its history. At the same time the Fund is receiving more cases. The new system did pay 72,000 benefits in 206 countries and territories around the world since the day it was implemented, which is a complicated process. But I do regret that we could not process new cases faster and remain committed to making sure that we do everything in our power to service all of our members.

IPS: In June, the Fund reported it had cleared 97 percent of the backlog, but this claim was disputed by the staff unions, which said only 36 percent of the backlog had been cleared. In July, the fund reported it had cleared 64 percent of the backlog. But the UN announcement on its intranet didn’t endorse the figure of 64 percent but simply said the fund reported this figure. Does it indicate that the UN administration doesn’t trust what the pension fund is saying?

ARVIZU: No. We continue to work closely with the UN Department of Management and they support our efforts as we support their efforts to expedite all new retiree cases.

IPS: What are the current total assets of the fund?

BOYKIN: As of July 14, 2016, the Fund had a market value of assets equal to $54.247 billion, and the YTD nominal return was 4.21%. The Fund’s long-term return objective (the actuarial assumption) is a 3.5% real rate of return.

IPS: Does the Fund’s investments conform to social and environmental guidelines laid down by the UN and the General Assembly?

BOYKIN: The UNJSPF has an Environmental, Social and Governance “(ESG”) programme. The Investment Management Division (“IMD”) of the UNJSPF has a duty to act in the best interest of our participants and beneficiaries. When evaluating investment opportunities, ESG issues play an important role.

As part of an international organization committed to social progress, better living standards and human rights and as a founding signatory to the UN-supported Principles for Responsible Investment (PRI) initiative and in association with the UN Global Compact (UNGC) and the UN Environment Programme Finance Initiative (UNEP FI), IMD acknowledges its responsibility to society.

Our ESG programme is focused on the following areas: We have restrictions on investments in tobacco and armaments securities, and the green investment portion of our ESG programme includes both green bonds and green equity.

The UNJSPF began the “E” or Environmental part of its ESG program in 2008 when the Fund first invested in green bonds. Green bonds facilitate investments with environmental benefits such as renewable energy, sustainable energy, sustainable waste management, biodiversity conservation and clean transportation.

The UNJSPF is a signatory of several important initiatives – the United Nations supported Principles for Responsible Investment (PRI); A Statement of Investor Expectations for the Green Bond Market; and the 2014/2015 Global Investor Statement on Climate Change.

Subsequent to the UN Climate Summit in September 2014, when the Global Investor Statement on Climate Change was signed by over 400 investors representing more than $24 trillion in assets, our $50 billion pension plan has made significant strides to address climate change.

We worked with MSCI, State Street Global Advisors and BlackRock to develop and launch two low carbon Exchange Traded Funds (ETFs), known as LOWC and CRBN. The MSCI ACWI Low Carbon Target Index was announced on 23 September 2014 during the UN Climate Summit. This new index was designed to closely track the performance of the MSCI ACWI Index, while having a lower carbon exposure. We are pleased to see this concept become a reality. Together, we can work on stabilizing greenhouse gas concentration in the atmosphere and providing long-term growth opportunities for sustainable portfolios.

The writer can be contacted at thalifdeen@aol.com

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