UN to shift some $9 billion from its staff Pension Fund to ‘passive management’

28 February 2007

The United Nations will move some $9 billion from its Pension Fund to “passive management,” a senior budget official said today, adding that more than a dozen bids for external management have been received and are under review.

The Pension Fund covers 100,000 staff worldwide, providing monthly pension benefits for over 55,000 retirees, said UN Controller Warren Sach. The principal of the Fund amounted to some $37.4 billion as of last week.

Last year it was decided to place a part of the Pension Fund portfolio in “passive management,” Mr. Sach said. Approximately $9 billion – or about one quarter of the total – would be transferred from active to passive management.

The active management had exceeded the benchmark in only five out of the past 20 years, he said. “Basically means that most of the time we haven’t done quite as well as the market. A quarter of the time we’ve done better but three quarters not as well.”

The move to passive management aimed to improve overall performance while reducing risk. Active management, he explained, involves buying and selling securities with the goal of outperforming a benchmark index, “doing better than the market, trying to pick stocks well and being ahead of the game.” Passive management aims to equal the market and benchmarks.

Following a lengthy consultative process involving not just experts but also the General Assembly and its Advisory Committee on Administrative and Budgetary Questions (ACABQ) it was decided to go ahead with external management of indexed investments, Mr. Sach said, acknowledging that this decision provoked some controversy.

“We are now moving towards making this decision effective,” he said. Expressions of interest for external management were reviewed earlier this year. A number of bids were received, and on 16 February there was a public meeting on the issue and 13 bids were made, “mostly US-based which is not to be surprised given that we are talking about the management of North American equities.” A technical evaluation is now in progress.

Mr. Sach stressed that this was a “prudent movement” that would not put the Fund at risk.

Asked about an investigation of the UN’s Office of Internal Oversight Services (OIOS) concerning the management of the Fund, Bernard Cochemé, Chief Executive Officer of the UN Joint Staff Pension Fund (UNJSPF), said he had requested the probe following “certain allegations” put forward by some staff members.

The OIOS conducted an investigation of conflict of interest and favouritism in the procurement of a company called Sprig. Its subsequent, “strictly confidential” report found that neither the UNJSPF nor the UN Procurement services followed all of the established rules, but it also found no evidence that the UNJSPF manager concerned held any financial interest in Sprig, nor that he had colluded with Sprig.

The initial contract was renewed and the systems were satisfactory, he said. “An important lesson learned from the investigation is that prudence should be exercised in any procurement action,” he said, adding that the Pension Fund could better document its proceedings.

He said he had established a Procurement Advisory Committee aimed at addressing these needs.

“These actions were discussed and reviewed by OIOS and it was concluded that they were appropriate and that UNJSPF has therefore implemented the recommendations of the OIOS,” he said.

“We can be confident that the Fund continues to be efficiently managed and that internal control mechanisms have been enhanced,” he stressed.

He also said press allegations that he had instructed staff members not to talk to the media were “totally nonsense.”

 

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