Does the UN Pension Fund Really Need to Invest in Financial Derivatives? Passblue: July 19, 2021 by Lowell Flanders

Excerpt:

"Why is the fund considering switching to these risky investments? So far, its members have received no explanation from Guterres as to why he is endorsing derivatives..."

"In all, the Great Recession led to a loss of more than $2 trillion in global economic growth, or a drop of nearly 4 percent, between the pre-recession peak in the second quarter of 2008 and the low hit in the first quarter of 2009, according to Moody’s Analytics.

Yet derivatives and other alternative financial instruments may soon be coming to the United Nations pension fund. Secretary-General António Guterres, in his December 2020 report to the 75th session of the General Assembly, endorsed a series of measures that would significantly change the risk profile of the UN Joint Staff Pension Fund. Indeed, Guterres indicated that the UN Office of Investment Management “may use exchange-traded futures, swaps and foreign exchange forwards for the purposes of increasing the efficiency and lowering the transaction cost of implementing various investment strategies, as well as for risk management and hedging purposes.” All these instruments are considered derivatives.

In his report, he also asked the Assembly for authority “to engage in borrowing for the limited purpose of performing such transactions and to the extent that such borrowing is required as an adjunct to the securities and instruments otherwise traded or used by the Fund.” Guterres said that “any exposure of the Fund resulting from such borrowing would be adequately covered and collateralized by the assets of the Fund.” Thus, any losses caused by such borrowing would be charged to the fund’s assets held as collateral for the loans, meaning a direct financial loss to the participants and beneficiaries of the fund....

Why is the fund considering switching to these risky investments? So far, its members have received no explanation from Guterres as to why he is endorsing derivatives. In his report, he provided a boiler-plate message about the aim “to expand the range of instruments available to the Fund to more effectively manage its investments . . . over the medium term.” But there is no explanation for the increased risk that participants and beneficiaries are expected to bear."

Read full article here:

https://www.passblue.com/2021/07/19/does-the-un-pension-fund-really-need-to-invest-in-financial-derivatives/