Monday, March 28, 2016

Pension Fund RSG: Soft landing and what's wrong with this picture? March 29, 2016

When Secretary-General Ban Ki-moon appointed Carolyn Boykin to the UN Pension Fund as his Representative for Investments in September 2014, rumors swirled like snowflakes that the new RSG had a spotty record --  something to do with the Maryland State Retirement and Pension System where she was Chief Investment Officer from 1999 to 2003.

That she was arriving fresh from her position as President of the Bolton Partners Investment Consulting Group, Inc., didn’t help to tamp down the unease. Bolton? As in one John Robert Bolton, former US Ambassador to the UN (2005-2006) who famously opined that “There's no such thing as the United Nations. If the U.N. secretary building in New York lost 10 stories, it wouldn't make a bit of difference"? Bolton Partners Investment Consulting Group, Inc. is apparently not that Bolton. Nevertheless, for some, the shock of the name was sufficient to question the new relationship before it got out of the starting block. For the rest of us, we shifted our doubts into park and hoped for the best.

With the rise of some recent concerns, we figured a rewind to the Maryland State Retirement Pension System could be in order. What happened there? An Internet search for ‘Carolyn Boykin’ doesn’t get very far until we discover that Carol Boykin of Maryland is now Carolyn Boykin of New York City. . . Oh, never mind.

More to the point. According to an article in The Baltimore Sun on November 20, 2002 (link below), Carol Boykin, as Chief Investment Officer of the Maryland State Retirement and Pension System deeply disappointed the Chairman of the Pension board by her failure to inform the Board that a money manager (Alan B. Bond who had been hired and supervised by Nathan A. Chapman Jr) who invested state pension funds, had been indicted for fraud that had caused the $26 billion fund to lose millions of dollars.

Ms. Boykin, in her defense, said she had told the Chairman, to which Mr. Schaefer retorted: “Telling the Chairman is not telling the board. . . If [Boykin] sees something wrong, it’s her duty as the investment adviser to tell the board and not just stand on ‘it’s not my purview.’” And “other trustees echoed Schaefer’s disappointment.”

Another article in the Baltimore Sun on April 23, 2003 (link below) cites various unnamed sources in reporting that  “Carol Boykin, chief investment officer of Maryland’s troubled state employee pension system, has been ousted” as of April 15, that  “her departure was not voluntary and was done ‘for the good of the agency’”, and notes that “Boykin served at a time when the system was beset by scandal and poor financial performance.”

It's September 2014 and Carol Boykin, now Carolyn Boykin, executes the softest of landings in the Investment Management Division of the UN Pension Fund as Representative of the Secretary-General for Investments, all $52 billion of the Fund's assets, neatly doubling her portfolio from her Maryland state pension days (link below).  

How did this new position come to be established by the General Assembly? Was it a recommendation from the Pension Board? What was so compelling about Carol Boykin to result in Carolyn Boykin’s selection for the position?

Many of us are acutely and painfully aware of the 2006 attempt, and others that followed, to outsource the management of US$1.6 billion of Fund assets, which was thwarted by Staff Union efforts, and eventually General Assembly resolution A/RES/61/240, viii), and reportedly initiated by a former Under-Secretary-General working on behalf of a firm he later joined. 

 Many of us were also troubled by several media reports last year claiming that the UN Pension Fund intended to move toward alternative investments, such as hedge funds (see links on this website to CNBC and Opalesque articles) particularly after we learned from more than one source that the RSG had deliberately leaked these claims to the media. Among the requests of the May 2015 petition signed by 3000 participants and beneficiaries was that the Secretary-General ensure that the Fund maintains its conservative investment policy that has kept it healthy for 65 years when many other pension funds have failed. 

For most of us, our fears were not allayed when senior UN officials provided public assurances that there were no current, medium-term, or long-term plans to change the risk profile of the Fund. 

As reported earlier, on 11 February 2016, Ms. Theresa Panuccio, Acting Chair of the Pension Board's Assets and Liabilities Monitoring Committee, wrote to the Secretary-General calling his attention to a "dangerously understaffed" Investment Management Division where "transactions are being carried out without the appropriate back-up signatures, in open disregard of proper clearance mechanisms. . . clearly violat[ing] the Investment Policy" which Ms. Panuccio describes as "a loud danger signal" (Ms. Panuccio's letter and USG for Management Takasu's response of 16 February 2016 are available on this website).

Even the President of the AFICS Governing Board, the closed-circuit, non-transparent body of supposed representatives of UN retiree interests who often seem to pull in the opposite direction (recall their dismissal last year of members' concerns about the CEO's revised MOU and media reports about the Fund moving toward riskier investments, their active discouragement of AFICS members from signing the May 2015 petition to the SG on these topics, and refusal to convene a general meeting to consult the membership on these issues, requested by 82 members under the By-Laws) was moved to write twice to the Secretary-General, on 4 and 24 August 2015, raising concerns that came up at the Pension Board meeting, about Investment Committee membership as "the prime mechanism for checks and balances in the investment procedures of the Fund" and other "governance" issues, and asking that "corrective steps be taken expeditiously." When even the AFICS leadership stirs itself, we need to pay attention if only to check that what they're doing is to our benefit (both letters and Mr. Takasu's response of 21 August 2015 are available on this website).

And now the Chair of the Assets and Liabilities Committee with her letter about dangerous understaffing, and "a loud danger signal" of irregular transactions? With these serious issues clamoring for her attention, the RSG makes time for bell-ringing with the princes of Wall Street? How warm is the relationship? And given their role in the financial crisis, why shouldn't we be worried? For whichever angle, there's something not quite right with this picture. 

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