PENSION FUND INVESTMENTS
Mr. Yukio Takasu
United Nations Under-Secretary-General for Management
April 17, 2016
Dear Mr. Takasu,
We, the undersigned, former and current staff, are deeply disturbed by recent issues surrounding the management of Pension Fund investments. We are grateful for the action you took to stop the proposed merger of the administrative and investment sides of the Fund. We also appreciate your recent actions to adopt progress benchmarks to eliminate the serious payments backlog, although questions persist about how quickly this backlog can be cleared and the effectiveness of management in the Fund Secretariat.
The faltering management of the Investments Management Division however, increasingly preoccupies us, and the tendency of its leaders to take on increased risk with our savings without appropriate risk assessment and without the required competent and independent staff to conduct such assessment. We refer, in particular, to two letters to the Secretary-General from the Acting Chair and Chair of the Assets and Liabilities Monitoring Committee, dated 11 February and 7 March 2016, respectively. More alarmingly, the RSG for investments has ignored advice and made it uncomfortable for officials that make frank and honest assessments of proposed, but inadvisable investments, particularly in risky hedge funds.
We have become aware that no one is now writing up the investment policy, maintaining the risk management manual, following up on compliance or doing business continuity and disaster recovery tests. All of this has been stopped because of inadequate staffing, in terms of both capacity and expertise. As one example, the resources and capabilities do not exist to do the dashboard for the bluebook and risk budgets.
How investment decisions are being made seems a complete mystery since there is no senior D-2 or D1 Deputy Director for Risk Management and Compliance who can take a view independent of the RSG as required by sound fiduciary responsibility. There is ample evidence from many sources that investment in hedge funds is ill-advised and counter productive, since hedge fund managers are known to make great profits for themselves, but serve their investors poorly. We note that the risk and performance dashboard has disappeared both from the blue book and website. Instead, the site provides a raw data dump, which does not tell the real story about the risk of investing more money in hedge funds.
Our concern is that without due diligence and oversight the RSG will fill the vacant D-1 and D-2 posts with candidates who do not have the required independence to truthfully say when an investment is not advisable.
Under the existing MOU, the recruitment of the D-2 requires that the CEO be 'consulted,’ but as far as we know the CEO and other Fund administration staff are completely in the dark about this secretive interview process, which was concluded with almost no oversight or participation. There are supposed to be checks and balances in the system – that’s why we, among others, argued that the two sides of the Fund should not be integrated. That does not mean, however there should be no oversight or participation in the decision making of the RSG.
When the RSG appeared in public on the issue of hedge fund investments she claimed that the existing Fund investment in Bridgewater (BW) All Weather (AW) Risk Parity Strategy was working well for the UN Pension Fund. This was at a time when other independent sources were saying that investments in AW were not advisable due to the nature of its strategy and the significant tail risk involved. BW’s Risk Parity strategy does not provide any diversification benefit according to many sources.
We share the alarm expressed by the Acting Chair and Chair of the Pension Board, Assets and Liabilities Monitory Committee that the RSG is operating in an administrative vacuum without reference to proper recruitment and investment procedures, participation by other members of the administration, and proper oversight. The decisions on Fund investments should not reside in any one person or be based solely on his/her personal preferences or views, without highly qualified risk assessment, which has as its fundamental value, the protection and conservative investment of fund assets.
We request you to intervene personally to ensure that these matters are handled in an entirely transparent manner to protect our savings.
