Once seen as a bastion of stability, the UN pension fund has rarely been out of the news these last two years, and for all the wrong reasons. We’ll try to shine some light on the malaise at the top of our pension fund and expose the power politics that could eventually tear it apart."
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https://www.unspecial.org/2016/05/trouble-at-the-pension-fund/
Trouble at the pension fund
LORAINE RICKARD MARTIN, UNOG
Corporate infighting, allegations of management fraud, media leaks, pensions not being paid, a move towards risky investments, all capped by a seemingly pliant board. How did it all go wrong?
Once seen as a bastion of stability, the UN pension fund has rarely been out of the news these last two years, and for all the wrong reasons. We’ll try to shine some light on the malaise at the top of our pension fund and expose the power politics that could eventually tear it apart.
The United Nations Pension Fund, 67 years old this year, provides pensions to 72,000 UN retirees and survivors. With $52 billion in assets, it has enjoyed robust health for much of its existence. While it suffered a significant dip in assets during the 2008 economic crisis, as did many public pension funds, unlike others that foundered, it rallied and continued to thrive. It has grown on the back of a conservative investment policy, with solid checks and balances in place, including strict separation of the departments managing its investments, known in the industry as the assets side, and that paying retirees, the liabilities side.
This all changed in 2014. Enter the fund’s CEO, Sergio Arvizú, a man known for his outward charm and diplomacy and in reality responsible only for paying retirees and with no access to the investments, despite his title. The staff unions received a trove of leaked documents documenting Arvizú’s attempts to revise the Memorandum of Understanding, the cornerstone document defining the fund’s relationship to the UN. The revision was being justified by a General Assembly resolution, 68/247, adopted in December 2013, requesting the fund’s board to prepare a review of staf!ng issues. (However, Arvizú failed to reveal that the fund was not supposed to take action until the proposals had been considered by the General Assembly.) While the MOU reads as a very technical document, the staff unions contended that the real goal of the MOU revision, which included changes to rules on procurement, receipt of gifts and hiring, was to disassociate the fund from the UN, give the CEO free rein over staffing issues and allow Arvizú to take control of the fund’s investments.
Following two petitions to the Secretary-General signed by 16,000 current and former staff, Ban Ki-moon’s then chief of staff Susana Malcorra, organized a town hall meeting on 16 April 2015 at UN headquarters in New York. Amidst widespread anger, she stressed that there would be no plans to change the investment policy in the short, medium, or longer term, and assured staff that no changes would be made to the MOU without consultation.
It was finally the UN’s head of management, Yukio Takasu, who suspended finalization of the revised MOU on 10 July that year, citing the need to allow time to sensitize staff and retirees about the real purpose of the MOU and ensure it would allow the fund “to operate in a more efficient and responsive manner.”
While attention over the last two years has been mainly focused on the difficulties facing CEO Arvizú, the fund’s investment side, known as the Investment Management Division, has also come under fire.
If this was meant to bring peace it failed, as around the same time staff working at the fund had come forward alleging fraud and conflict of interest by Arvizú, later detailed in the US and Swiss press. This plunged the fund into a new storm and triggered an investigation into Arvizú, which is still ongoing.
With the MOU debacle and allegations against Arvizú still fresh, the annual meeting of the fund’s board, which took place in July 2015, was the most contentious in recent memory.
Against a charged atmosphere at the Palais des Nations in Geneva, Arvizú and his counterpart in charge of investments known as the Representative of the Secretary General, Carolyn Boykin, looked horns on a number of issues.
Allies of Arvizú in the board also took to the floor one after the other to lambast Takasu for suspending the revision of the MOU. Arvizú then had UN security remove a participant from the meeting when it appeared that she would question his management practices. The staff union federations present at the meeting, CCISUA and FICSA, were at tacked in an outburst by the fund’s legal chief, Janaa Sareva, for campaigning against changes to the MOU. Sareva was then supported by Linda Saputelli, the president of the FAFICS retiree association.
Unspoken at that meeting was a new looming crisis that would shortly hit the fund. Over that summer, a new administrative software was being installed called IPAS (Integrated Pension Administration System). Against better advice, the decision had been taken among the fund’s senior leadership not to provide a backup procedure in case the system failed to work.
And that is exactly what happened. Between May and August that year, the fund was unable to process payments for newly retiring staff members. And when the system finally started to function, fund staff, despite working overtime and weekends, were unable to maintain the rate of processing they had before.
Reports emerged in late 2015 of protracted and unprecedented payment delays, reaching by the end of the year an average of six months. Emails by retirees, some penniless, went unanswered and stories circulated of unopened files stacked floor to ceiling at the fund’s New York office. Messages from Arvizú failed to acknowledge the severity of the situation.
The staff union federations, CCISUA, FICSA and UNISERV, in a joint letter dated 18 February 2016 to the Secretary-General and Executive Heads, drew attention to the problem, and called on the chair of the fund’s board, Olusoji Adeniyi, to convene an extraordinary meeting to resolve the crisis.
Adeniyi,
reputed to be close to Arvizú, replied that he saw no reason for an
extraordinary board meeting and that the delays would swiftly resolve
themselves. Unsatisfied by the reply, the staff unions initiated a new petition
to the Secretary- General, which at the time of writing had collected 3,500
signatures, calling for Arvizú to be replaced with someone able to “fix the
problems at the fund and restore staff morale.”
Stung
into action by the letter and petition, Takasu, the UN head of management,
intervened at the end of February to impose performance indicators on Arvizú,
with a target to reduce the six-month payment backlog by 35 percent by the end
of March and eliminate it entirely by 31 May 2016. He announced this to staff
through the UN’s intranet on 1 March.
Meeting
the CEO once month later, Takasu was assured that the fund had accelerated
processing and exceeded its first performance target. This was promptly
announced on the UN intranet. However, the figures are disputed (see inset by
the CCISUA staff union federation president) and the petition to
Secretary-General Ban Ki-moon to replace Arvizú has been revived.
At the
same time, a former chief of entitlements at the fund issued an open letter on
9 April 2016 describing the Arvizú’s reports on the backlog as “seriously
flawed and deceptive” and calling for an independent investigation and payment
of interest and damages to retirees who hadn’t been paid.
While
attention over the last two years has been mainly focused on the difficulties
facing CEO Arvizú, the fund’s investment side, known as the Investment
Management Division, has also come under fire.
The
division is led by Carolyn Boykin, with the innocuous title of Representative
of the Secretary-General. She reports directly to Ban Ki-moon rather than to
Arvizú. Her appointment in 2014 had already caused a stir when media reports
were shared of her sudden departure from a previous position as chief
investment officer at the Maryland State Retirement and Pension System under a
mismanagement cloud in 2003. (She then joined Bolton Partners Investment
Consulting Group, an actuarial, not investment, company for a number of years
before landing the UN job.)
On 10
April 2015 and, later, in June that same year, CNBC and Opalesque,
respectively, announced that Boykin was considering moving toward hedge funds
and other alternative investments, and was authorized to hire external fund
managers. This information was, according to reliable sources, deliberately
leaked to the media, and calls from eager hedge funds soon followed.
Equally
surprising was a simultaneous media report that the chair of the fund’s
investment committee, Ivan Pictet, was resigning after ten years, citing
reasons of his advancing age and long working hours.
However,
fund insiders told the author that Pictet had been elbowed out. This wasn’t
denied in the Swiss press: “Le fait de ne pas avoir les coudées franches a-t-il
pesé dans la décision d’Ivan Pictet? “Ce n’est pas faux”, répond le banquier
genevois.” (Le Temps, 10 April 2015, “Ivan Pictet a démissionné du
Fonds de pension de l’ONU”).
Further
exchanges of letters show deepening problems on the fund’s investments side.
In
August 2015, shortly after the annual Pension Board meeting, the FAFICS retiree
association president, Linda Saputelli, who had heretofore dismissed concerns
about both the MOU and hedge funds, while staunchly supporting the CEO’s push
for a revised MOU, swung into action, exchanging letters with Takasu, in which
she voiced “unease” about a number of management and governance matters related
to the fund’s investments that, she emphasized, posed risks to the system of
checks and balances.
Six
months later, in February and March 2016, the fund’s assets and liabilities
monitoring committee wrote to Takasu raising alarms about the situation at
Boykin’s Investment Management Division, and requesting Secretary General Ban
Ki-moon’s intervention and concrete actions concerning “weakened governance and
risk management”, “dangerous understaffing” and “a loud danger signal” of transactions
conducted “in open disregard of proper clearer mechanisms” and without
reference to proper investment procedures and oversight.
The
letter also noted that Boykin’s statement at the committee’s February meeting
“that possible changes to the Fund’s investment philosophy and approved UNJSPF
risk appetite are being considered” did not conform with acceptable levels of
investment risk.
Add to
these worries, Boykin’s reported attempt last year, stymied by an unfavorable
internal risk assessment, to invest an additional $2 billion in hedge funds at
a time when large public pensions were pulling out of hedge funds.
Today
the fund faces a crisis of confidence and leadership: questionable statistics
about the backlog and questions about when long-suffering new retirees and
survivors may expect their first pension payment; a power-hungry CEO under
investigation; an investment chief operating in an environment of lax
compliance and risk management with plans for riskier investment of our life
savings; and a board seemingly in cahoots with the CEO.
It is
not too late to reverse the fund’s problems. However, left to their own
devices, neither Arvizú nor Boykin nor the fund’s ineffectual board will make a
difference. Given the increasingly alarming evidence that the continued safety
of our pensions may be hanging in the balance, there’s every reason for the
Secretary-General to focus attention on how a faltering pension fund might
impact his legacy and take swift and forceful action while he still can.
