UN Pension Fund – Outsourcing investments. Virtual global townhall.
Informal/unofficial summary
The virtual global townhall on outsourcing investments in the UN Pension Fund, hosted by CCISUA, held on Monday, 28 February 2022, may have raised more questions than it answered.
The following is a brief summary (not endorsed by CCISUA), with an ‘overview’ and ‘discussion points’. Fund members are encouraged to view the video attached to obtain a full account of the briefing. A transcript is available (not attached).
The meeting was chaired by CCISUA president, Prisca Chaoui (the Coordinating Committee for International Staff Unions and Associations) and the speakers were (in the following order):
Pedro Guazo, Representative of the Secretary-General for Investments (RSG), UNJSPF
Toru Shindo, Chief Investment Officer, UNJSPF
Michelle Rockcliffe, Former CCISUA Adviser on Pension
Ian Richards, Alternate Participant Representative to the Pension Board
Tomasz Wojciechowski, Head of Fixed Income, UNJSPF
Also present: Ms. Anastasia Rotheroe, Director for Public Equities,UNJSPF
Discussion points
1.State of the fund’s health
2.Policy regarding the use of external managers and financial derivatives
3.How much of the fund’s assets are being currently outsourced/managed by external managers? What additional percentage of the fund’s assets will be outsourced?
4.What is the reason for the decision to outsource more assets?
5.Who made the decision? Is the UN Secretary-General aware of it?
6.What is the cost efficiency of internal vs external management?
7.Is the decision to outsource more assets temporary or permanent?
8.Was the pension board consulted on the decision?
9.Transparency in the fund’s investments
10.Terminology
11.Environment, social and governance issues (ESG)
Overview
Issues of concern
Ms. Chaoui opened the meeting by stating the importance of the fund’s investments for its 210,000 beneficiaries, who, she said, were concerned about how the fund’s assets are being managed; the environmental, social and governance (ESG) impact of investments; the use of financial derivatives; and the recent decision of the OIM to outsource an additional 18 per cent of the fund’s asset, “which would bring external management to more than 36 per cent.”
Some discrepancies
While the fund’s representatives, led by the RSG, labored to reassure participants, obvious discrepancies among the various statements serve to raise more questions than answers. Some of the issues of contention focused on whether the decision to double the percentage of the fund’s assets that will be managed externally (18 to 36 percent) is indeed a temporary measure until the fund builds its own resources or indicative of a longer-term trend toward outsourcing; what was the actual additional percentage being outsourced; how the decision was made; whether it was already approved or still in the process; whether or not the UN Secretary-General, the fund’s fiduciary, was aware; that the pension board has a consultative, not decision-making function on investments; whether there was a misinterpretation of the pension board’s agreement about when external managers could be used; the meaning of terminology, i.e, “outsourcing” vs “the use of external managers”; and the need for more transparency in investments overall and in ESG in particular.
Bottom-up decision?
Although the RSG insisted that the decision had been made from the bottom up, i.e, by the Fixed Income team, a CCISUA adviser said that knowing the fund staff involved, she had her doubts. There was even less clarity on the topic following the statement of the head of the Fixed Term portfolio.
Mr. Guazo’s response to a question as to whether the Secretary-General was aware of the decision to increase the use of external managers seemed to indicate that he was not.
Note: I've just been informed since posting this summary that the Secretary-General indicated at a staff townhall on or around 17 February that he is aware of the decison.
Word play
The RSG glided over whether or not “outsourcing” and “external management” had the same meaning and the fact that the issue had been taken to the pension board only recently, and at the request of the staff unions. He insisted that the external managers were not on Wall Street. He was also reminded that the board has no decision-making role on investments.
Transparency
Mr. Richards noted that fund’s summary of the board meeting available on its website made it appear that the discussion in the board was “an easy one” while in fact, many questions and concerns were raised.
In response to statements about the need for more transparency on investments, as well as ESG, the RSG stated that providing more information could sacrifice returns and would perhaps be minimally useful to most stakeholders; but he would consider the use of benchmarks for this purpose.
Mr. Richards called for an open debate on the fund’s intentions on outsourcing, as well as on ESG matters.
Past attempts to outsource the Fund’s assets
Ms. Rockcliffe recalled past attempts to outsource the fund’s assets, noting that “In 2007 it was the New York staff union which stopped the attempt to outsource 25% of our fund by the RSG. In 2014, the New York and Geneva unions stepped up when the CEO tried to externalize the pension Secretariat.” She thanked CCISUA for taking the initiative this time, and ended her statement with the "hope that the Secretary-General as fiduciary of the fund would be prudent in assessing performance in terms of investment policy constraints of the past 5-15 years” given that the reason being stated for additional outsourcing was that the Fixed Income portfolio had underperformed. She urged the Secretary-General to “listen to the voices of beneficiaries of the fund and prevent the unnecessary and expensive outsourcing of our investments to external managers on Wall Street.”
Closing
In closing, Ms. Chaoui noted that the meeting was recorded. She would send unanswered questions to the RSG and circulate the answers in a communication to all staff. In her view, some of the answers to questions asked at the meeting were clear, others were not. She believed that the more than 340 persons who had attended the meeting now had a better idea of the issues. CCISUA would follow up with its constituency about the next steps. She ended by reminding the RSG that he, not the pension board, represented and reported to the Secretary-General on the fund’s investments.
Note: unanswered questions are included at the end of some sections.
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