More on investment performance and Fund health, August 17, 2016

MORE ON INVESTMENT PERFORMANCE AND FUND HEALTH: Quote from CCISUA article posted below:  "The previous Chair of the Fund assured staff that the Fund owed its healthy position in part to contributions made by participants being twice the current payments to retirees. In reality, as confirmed by the annual report, contributions are around the same level as payments. In time, as retirees exceed contributors, payments may exceed contributions. It is not a time to be complacent.

Looking ahead, it is clear that the Fund is facing a number of challenges in terms of leadership, governance, investment performance and its ability to pay retirees. In addition, further evidence has come to light regarding:

the UN’s reduced oversight of the Fund’s investments; and
the inability of the Fund’s auditors, more used to auditing governments and international organizations, to understand the unique challenges of a pension fund."

Here are more details on under-performance. The July monthly performance report is available on the IMD website. The Fund is now trailing its benchmark by 1.9 per cent (Fund 5.06 per cent, benchmark 6.96 per cent. In June, underperformance was 1.53 per cent, and in May 1.2 per cent.) Why is the benchmark important? Because it’s the measure of the Fund’s long term sustainability. The Fund started the year at $52.08 billion and increased to $54.82 billion by returning 5.06 per cent. Informed sources say that if the Fund had simply been indexed, it should have returned 6.96 per cent, or $55.7 billion, a difference of $990 million that isn't there that should be there were IMD performance under the RSG up to snuff.

Ask about underperformance and the RSG responds that the Fund is doing great because it is over funded. And what accounts for the sudden improvement in funded ratio, and, one might add, the yawning discrepancy between the seriously disturbing report of the Board's Assets and Liabilities Monitoring Commitee and the glowing report of the Consulting Actuary and Committee of Actuaries trumpeted by the Board in its communique? Again, informed sources say that accounting rules have been changed to make the situation look markedly better. Deft accounting moves have created just enough confusion to take the focus off the investment mandate. And so far it's working. How? Again according to the same sources, since the RSG reportedly elbowed out the long-serving Investment Committee Chair (Ivan Pictet) last year, there simply isn’t sufficient investment expertise on the Investment Committee to bring the focus back to where it needs to be – on investments.

Note in addition CCISUA's statement in the article posted today and quoted above about reduced oversight of the Fund's investments and the inability of the Fund's auditors to deal with its unique challenges.

Despite the very serious findings and recommendations by the Assets and Liabilities Monitoring Committee, recall that the overall message from the Board was "it's so good that if it were any better, we wouldn't be able to stand it". As of now, it's unclear whether any of the ALM Committee's recommendations, such as the one below, were approved by the Board:   (See entire Power Point by ALM Committee posted on the blog):