There are very worrying signs that
investment performance is way down at our Pension Fund. A quick comparison of
the 2015 and 2016 performance reports tells an unsettling story.
But first, recall last year’s leaks
to the media about the Fund moving in the direction of hedge funds and riskier
investments. Recall too that AFICS/NY consistently dismissed concerns, and Chef de Cabinet Susana
Malcorra provided assurances at the 16 April 2015 town hall meeting that there was nothing to worry about, all of this
taking place amid increasing media reports of other major funds moving away from hedge funds
because of concerns about low performance and high fees.
Some good news: on 19 May 2016 at the
AFICS/NY assembly the AFICS/NY Pension Committee Chair stated that “the main
investment classified as a hedge fund has been largely liquidated as a result of
members’ expressed concerns.”
So how are the Fund’s investments
doing? Not good news. Take a look at the ‘Performance’ charts for 2015 and 2016
(links below), bottom right of each chart, bearing in mind that the real return
target for our Fund is 3.5 per cent.
·
2014-2015: performance (second bar on
2015 ‘Performance’ chart): 3.24 per cent, outperforming the
policy benchmark of 2.97 per cent.
·
2015 performance (second bar on 2016
‘performance’ chart: minus 0.88 per cent, underperforming the policy
benchmark of minus 0.08 per cent.
·
2016: Returns for first quarter: 1.2
per cent underperforming the policy benchmark of 1.96 per cent
by 84 basis points).
It's important to note that
most of the underperformance in the first quarter of 2016 was transferred from
last year’s very low performance, when the Fund was trailing the benchmark by
0.8 per cent (March 2015 to March 2016). It is also alarming to see that IMD is under performing its own policy
benchmark significantly --a benchmark which is custom designed for IMD. More
alarming yet is the reversal from a consistent outperformance trend to underperformance.
Recall that at the AFICS/NY assembly
the RSG for Investments noted that the Fund had not met its real rate of return target
of 3.5 per cent last year and was unlikely to do so this year, for reasons of a 'very challenging and very volatile' market, and
as she made her point, compared real and nominal return rates, i.e., apples and
oranges (see blog article on the AFICS/NY assembly).
Recall too that the RSG dismissed as
“misunderstandings” the concerns expressed in two letters to the Secretary-General
dated 11 February and 7 March 2016, from the Acting Chair and Chair of the
Pension Board’s Assets and Liabilities Monitoring Committee, citing several
vacant high-level posts, and “loud danger signals” of transactions carried out
in an environment of “weakened investment governance and risk management” and
“in violation of investment policy”.
It was also a “misunderstanding”, the
RSG said, when the Committee’s 7 March letter expressed concern about her statement at its 2-4 February 2016 meeting concerning "possible changes to the Fund's investment philosophy and approved risk appetite". There's nothing to worry about, she said; she's “buttoning down”, “running a tight ship” and
getting "more conservative".
Returning to the past ten years’ performance indicators on
the performance charts, it’s sobering to note the impact that one year of low
returns can have on many years of good returns.
Regarding the RSG’s claims of a
volatile market as reason for the Fund’s poor performance, a quick look at the
volatility index (link below) shows clearly that current conditions are
downright calm, considering that average volatility is around 20, compared to
say 2008 when the volatility index was 80, the highest ever.
Why also is IMD underperforming against its
own policy benchmark? A long-term history of IMD shows that it has consistently
exceeded its own benchmark handily, yet is now sliding backward at an
ever-increasing rate.
If this trend continues, in another
year or so the Fund may potentially erase
the value added over the last ten years – a high level of damage to recover
from.
How much tolerance can
the IMD, the Pension Fund’s Investment Committee, and UN management, have for
this poor performance? Most important, how safe are our life savings?
We understand that there's an independent industry-wide
report that compares IMD's performance with other similar
funds. The report is not on the IMD website. We would all benefit from seeing
that report and for the sake of transparency, the RSG should publish it soonest.
http://imd.unjspf.org/quarterlyreports/1Q2015QuarterReport.pdf
http://imd.unjspf.org/quarterlyreports/1Q2016QuarterReport.pdf
http://www.marketwatch.com/investing/index/vix/charts?symb=VIX&countrycode=US&time=13&startdate=1%2F4%2F1999&enddate=6%2F5%2F2016&freq=1&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013
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