Open letter about our UNJSPF investments
16 December 2021
Dear current and future beneficiaries,
What’s happening in our Pension Fund?
While there was no mention of any discussion of the matter in the UNJSPF Board Report (A/76/297), the Secretary-General and his representative in the Office of Investments Management (OIM) are preparing to outsource an additional 28% (twenty-eight percent) of our portfolio to passive external managers.
This is the second year in a row that the SG has come up with a surprise plan without first sharing his intentions with the Board and beneficiaries.
Since OIM’s response to ACABQ’s 2020 recommendations in the Board Report, cites proof that “managing each portfolio internally makes the Fund more efficient than its peers that manage externally”,1 the question is, what changed between July and October?
This is substantial, unprecedented, risky and costly!
If the entire fixed income (FI) portfolio were to be outsourced, this means that we lose control of our assets and allow big Wall Street firms to manage over 46.8 percent, or more than $41 billion of our $88 billion dollar fund.
The internally managed fixed income portfolio is more than 26% of our fund which has historically maintained a mix of approximately 85% internally managed and 15% externally managed portfolios. On 30 September 20212 the mix was 82 percent internal/ 18% external – none of the fixed income is currently outsourced.
Our Fund has minimized costs while controlling our assets and risks, and adhering to the principles of safety, profitability, liquidity and convertibility, in line with requirements of the General Assembly.
It was fortunate that the attempt to outsource 25% (then $9B) of the Fund by a previous RSG back in 2007 failed, due to action by the NY Staff Union, as we were then able to mitigate losses during the crash of 2008 and our fund rebounded with active internal management of our portfolio, increasing by 32% of its value in 2009.
UNJSPF Performance
While the RSG has been emphasizing the OIM underperformance of the benchmarks at 1-3-5-7 and 10 years, the fund appears to be thriving and management boasts of the asset
value of $88 billion+, has met its long term 3.5 percent objective, is fully funded and has an actuarial surplus.
So, has a study been performed to see what the results would have been, were it not for the Fund’s “risk avoidance strategy”3 which prevented investments in certain bonds, weapons and tobacco and which made up a large portion of the market benchmarks to which OIM performance is compared?
Were it not for the 2016 decision which prohibited portfolio managers from investing in sovereign negative-yield securities whose currencies then later appreciated against the US Dollar, would the FI portfolio still have underperformed? Possibly not.
Conversely, we know that in 2019 a customized benchmark excluding weapons and tobacco and including a new universe of riskier assets was implemented. Even then the Fixed Income manager underperformed the market.
OIOS in (A/75/215) highlighted several deficiencies in the management of the benchmarks4 and a toxic work environment. Did these factors have a negative effect on the current performance even though the 2019 Investment Policy had been amended to account for the pre-2013 and 2016 and other issues?
In the end it seems the SG is assuming a “manager accountability avoidance” strategy and will instead outsource the entire $26 billion portfolio, costing us shareholders millions in transition costs and external management fees, and some staff their jobs.
The Board of Auditors observed serious deficiencies in UNJSPF’s oversight of its external managers5. The ACABQ stressed the importance of the BOA recommendation that “the Fund finalize and publish its selection and evaluation criteria for external funds and discretionary investment managers” [emphasis added]
Just more of the same.
The continued lack of transparency and rush to implement new policies as observed by OIOS6 has persisted under this RSG since April 2020. The matter of derivatives was neither discussed with the Pension Board nor the Investments Committee prior to a request to the Fifth Committee in 2020 for approval to implement these new risky securities.
Once again in 2021, just two months after the Board meeting, OIM advertised an opening7, for about 6 days - for a “Fixed Income Transition Strategy Consultant”. Just three (3) weeks later we hear of a plan to outsource the entire Fixed Income portfolio, even though OIM asked for additional posts in the 2022 budget, and asserted that our internal management is more efficient, only months ago.
Coupled with the Board of Auditors observations for the last 4 years, regarding the deficiencies in OIM’s oversight of external managers, this rush to transition seems unwarranted and risky.
Can the lack of transparency be justified in a public pension fund such as ours?
When are we going to be informed - after the fact? Why is there such a rush to outsource our fund, again? If it’s such a great idea why the secrecy? How does this affect OIM’s Environmental Social and Governance policy? Is this another way to implement the controversial derivative investments?
Will Unions have to rise to the challenge as they did in 2007 and 2014 to save us from the Wolves of Wall Street?
Sincerely,
Michelle Rockcliffe
UNJSPF Beneficiary
1 https://undocs.org/A/76/297 pg. 323- Annex V paragraph b) Actions taken to implement the [ACABQ] recommendations
2 OIM Website https://oim.unjspf.org/investments-at-glance/internally-managed-assets/t
3 https://undocs.org/A/67/9 para 88
4OIM Governance Audit https://undocs.org/A/75/215 paragraphs 14, 65
5 https://undocs.org/A/74/7/Add.14 para 16,17 and http://undocs.org/A/72/7/Add.23 paras 43, 44 and 45
6 OIM Governance Audit https://undocs.org/A/75/215 Recommendation 7 – page 24
7 https://untalent.org/jobs/fixed-income-transition-strategy-consultant
