UN Pension Fund: in the Covid-19 crisis, the Secretary-General must step in now to resolve internal issues on investments, 29 March 2020

For the past year, internal turmoil has roiled the UN Pension Fund’s Office of Investment Management (OIM) led by Sudhir Rajkumar, the Representative of the Secretary-General for Investments (RSG).

This article presents available facts, in the hope that bringing them into the open will spur necessary attention and steps to restore internal calm to OIM to enable both staff and management to better weather the current external storm caused by the Covid-19 crisis.

Now more than ever, the Secretary-General, the Fund’s ultimate fiduciary, must step in to assess the facts and take steps to resolve the situation.  No leader, including the RSG, can do an effective job when there are festering and unresolved differences between staff and management.

What’s at stake is the financial health and sustainability of our Fund. Indeed, there is nothing about Fund governance and oversight that instills confidence.   If the Secretary-General has acted to address this raging controversy in the past year, such action hasn’t been evident.  

The facts involve allegations against and responses from the RSG; media reports on the controversy; a letter to the Secretary-General from UN Participant Representatives to the Pension Board and a response from the RSG; an open letter to the Secretary-General; and an investments update from the RSG which was circulated to OIM staff and posted briefly yesterday on the OIM website, and taken down shortly after.  

It's been nearly six months since the swirling allegations were first brought to the Secretary-General's attention by the UN Participant Representatives to the Pension Board. He must take swift action now to assess the facts and resolve the situation to ensure our Fund’s continued health and stability in these difficult times.

The allegations

The allegations, which originate from a group of senior investment officers in the Fund, and are supported by Fund staff representatives and the UN Participant Representatives to the Board, include concerns about a seeming shift in OIM from a more conservative to a more aggressive investment policy; the path being taken to implement a shift to emerging markets, with higher risks and more volatile returns; decision-making on investments concentrated in the hands of the RSG; and staff management conflicts.

The RSG’s response

For his part, Rajkumar contends that his investment approach is designed to reduce, not increase, risk and that it is “unanimously and strongly” supported by the Pension Board, the Investments Committee and the Committee of Actuaries.  The Secretary-General’s delegation of authority is personal to him, he notes.  He acknowledges that systemic change could be expected to cause fears and concerns and says that he is committed to addressing them by communication, empathy and support for staff.

How to square this picture?

Until Covid-19 hit the financial markets, the Fund has been a picture of financial stability and appears, even now, to be holding steady, according to an investment report from the RSG that was circulated to Fund staff last Friday and posted briefly on the OIM website and subsequently removed.

Last November at a pension briefing at UN headquarters New York organized by the UN Staff Union to which Rajkumar was invited, and where many of the above allegations were raised by a UN Participant Representative, Rajkumar, without addressing the allegations, made the following points on the Fund’s financial stability and elaborated on them in a power-point presentation: the Fund was fully funded as of 31 December 2018; its latest Market Value was over $69 billion in preliminary numbers; the Fund had achieved its long term investment objective of meeting or exceeding a 3.5 per cent real rate of return (net of inflation) over the long-term, while it was less successful over the past 10 years in meeting its short-term investment objective; and that OIM was taking further step in the implementation of its approach to sustainable investing.

How then to square this picture of a Fund doing well financially, and the reports, including in the media, of ongoing controversy and staff-management tensions over policies that are alleged to be putting the Fund at risk?

Media reports

After Rajkumar posted a note on the investment situation on 4 February 2019, a Mandate Wire (Financial Times) article on 7 February raised alleged issues of transparency in investment reporting and quoted “retirees” who were reportedly taken by surprise by the RSG’s report of record-low revenues in 2018. (I was also quoted in the article, although the concerns that I raised related to governance issues on the Secretariat side of the Fund.)

Again in December 2019, Mandate Wire reported on a controversy in the Fund about a $150 million investment in Global Infrastructure Partners, which it said, “resulted in a five-month standoff between senior fund leadership that dragged questions over fiduciary duty and proper due diligence protocol for evaluating external fund managers to the surface”.

A brief honeymoon

Rajkumar, former head of the global pension advisory program at the World Bank Treasury, came on board as Representative of the Secretary-General for Investments in January 2018.

He seems to have enjoyed several months of a grace period before the internal waters began to roil toward the end of 2018, less than a year into his tenure.  Reports started to come out about a group of staff (senior investment officers) who were unhappy with his management style and with structural and policy changes that he was making. (I spoke with Rajkumar in early October 2019 for an article for Passblue, about allegations that had come to light at that time. See link to article below for his responses.)

Still, Rajkumar’s honeymoon beyond this group of staff appears to have continued through the Pension Board meeting in July 2019, with barely more than a few grumbles from FAFICS (the Federation of Associations of Former International Civil Servants), the UN retiree organization, that OIM was not posting investment reports as frequently as under previous OIM leadership.

Letter from UN Participants to the Secretary-General

In a letter to the Secretary-General dated 21 October 2019, the UN Participant Representatives refer to the RSG’s new investment policy presented to the Board in July 2019, and to reports including in the media that raised questions that “half our invested equities would need to be shifted” in four months from strongly performing North American markets to emerging markets. They raise questions about the seeming shift from a conservative to a more aggressive investment approach with higher risk tolerance and more volatile returns; a revised delegation of authority that places decision-making on investments solely with the RSG; and conflicts among OIM staff where OIOS and OHR have been asked to intervene

Noting their support for the General Assembly’s call in resolution 73/274 for more investments in emerging markets, they also state that “The concerns brought to our attention would appear to relate to the path our Fund takes to get there and which seem to mark a break with the conservative approach of the last 70 years.”

They conclude by asking for the Secretary-General’s urgent attention including regarding the need to “adhere to the basic principles of safety, profitability, liquidity and convertibility” in investments.

RSG’s response to the UN Participant Representatives

On 4 November, the RSG responded to the above letter, stating that the new Strategic Asset Allocation reduces risk to the Fund compared to the 2015 SAA. The Pension Board, the Investments Committee and the Committee of Actuaries, he said, “unanimously and strongly” supported the approach.  Implementation would take place in four years, not four months as alleged; 15% of equities would be shifted over 5-6 months, not 50% as alleged; from a long-term investment perspective, emerging market equities have delivered 2.3 times the cumulative return of developed market equities over the past 30 years.

Further, he stated, the Secretary-General’s delegation of authority was personal to him, and according to his terms of reference as RSG, he “may not further delegate such responsibility and authority”.  He had “focused on strengthening and institutionalizing investment decision-making processes—in line with global best practice – by ensuring that such decisions are informed by broad-based input from different teams, and are taken in an inclusive, open committee format.”

In addition, he noted, conflict among staff members in any office can be expected to occur. He was committed to amicable resolution of conflicts. However, he stated, achieving a best-in-class global long term investment institution requires systematic change to strengthen investment, risk management, operational processes, decision-making, and increase transparency and create accountability, which may cause concerns and fears.

He concluded by saying that he was “committed to a change management process which embraces these themes of communication, inclusion, empathy, and support for adaptation” and remained open to understanding and addressing the concerns of all constituents.

Pension briefing

A couple weeks later, in November 2019, when the Staff Union held a pension briefing for staff and retirees to which Rajkumar was invited, the Vice-Chair of the UN Staff Pension Committee (a UN Participant Representative), voiced in his opening statement some of the same allegations contained in the UN Participant Representatives’ letter to the Secretary-General.

Rajkumar, who appears to be unflappable under pressure, did not respond directly to the allegations. Instead, he gave an in-depth power-point presentation in which he stressed, and elaborated upon, the Fund’s excellent financial health, as stated in paragraph 8 above, including that OIM was taking further steps in the implementation of its approach to sustainable investing.

Where are things now that Covid-19 has hit?

It’s now been four months since last October/November’s exchange of letters between the UN Participant Representatives and the RSG on behalf of the Secretary-General. Where are things now that Covid-19 has hit?

Open letter to the Secretary-General

A UN Participant Representative wrote an open letter to the Secretary-General on 12 March 2020 that has so far not been published and because the allegations have not been responded to, will not be quoted here, except to note that it alleges “unilateral decisions” on investments in Global Emerging Markets.

Investment report by the RSG that has since disappeared

Last Friday, an investment report by the RSG dated 27 March 2020, was circulated to Fund staff and posted briefly on the OIM/UNJSPF website before being removed. 

The report stated that “the Market Value of Assets of the Fund as of 26 March 2020 (preliminary figures subject to change) was $63.5 billion” (above the $60.3 at end-2018 at which the Fund was fully funded), and that “in these stressful times, however, it is important to remember that the Fund is a long-term investor and that “twin priorities…have been the health and well-being of our staff and the prudent management of the Fund’s assets…that OIM [remains] in close and regular contact with members of our Investments Committee…who have been very supportive of OIM’s investment strategy …”.

The report concluded by noting that “financial markets are likely to be volatile over the near-term as they deal with high levels of uncertainty. OIM remains confident that it will be able to deal with whatever challenges the markets may present, with the support and encouragement of all our stakeholders.”

Where do things stand?

There are reports that the UN Internal Oversight Office (OIOS) has looked into some of the staff-management issues, but results are unknown. The General Assembly’s latest resolution (A/RES/74/263) refers to a planned internal audit of the governance of the OIM and requests submission of the audit along with the Board’s comments in its next report. Results of the audit, which is underway, are not expected to be available until mid-2020.

Swift action is needed

It's been almost six months since the Secretary-General received the first letter from the UN Participant Representatives. Action is needed to swiftly access the facts and address the situation.

How does the Covid-19 crisis complicate the process of analyzing those facts, such as determining the effects of policies vis à vis the current economic crisis, and arriving at conclusions and action, in terms of ensuring policy changes as facts may indicate, and a mutually supportive staff-management culture in OIM conducive to effective management of the Fund’s assets?

The volatility of the external environment is already a challenge for any institution.  The internal strife has been going on for far too long and needs to be addressed before it adds any further to the stresses on our Fund.

It’s long past time for the Secretary-General to get to the bottom of this issue. He must take steps now to resolve the internal issues in order to ensure that our Fund weathers this current global storm.

https://www.passblue.com/2019/10/10/the-67-billion-un-pension-fund-the-good-the-bad-and-the-ugly/