Identifier
Created
Classification
Origin
06USUNNEWYORK2204
2006-12-04 16:27:00
UNCLASSIFIED
USUN New York
Cable title:  

UNITED NATIONS PENSION SYSTEM DEBATE

Tags:  AORC KUNR UNGA 
pdf how-to read a cable
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RR RUEHWEB

DE RUCNDT #2204/01 3381627
ZNR UUUUU ZZH
R 041627Z DEC 06
FM USMISSION USUN NEW YORK
TO SECSTATE WASHDC 0846
UNCLAS USUN NEW YORK 002204 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: AORC KUNR UNGA
SUBJECT: UNITED NATIONS PENSION SYSTEM DEBATE

REF: A. USUN 01620

B. A/61/545

C. A/61/9

UNCLAS USUN NEW YORK 002204

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: AORC KUNR UNGA
SUBJECT: UNITED NATIONS PENSION SYSTEM DEBATE

REF: A. USUN 01620

B. A/61/545

C. A/61/9


1. SUMMARY: On November 10, the Fifth Committee
(Administrative and Budgetary) of 61st United Nations General
Assembly held its formal opening consultations on the UN
Pension Fund and on the Joint Staff Pension Board. United
Nations Joint Staff Pension Board Chairman presented the
outcomes of the Board's July 13-21 meeting in Nairobi.
Speaking as the Representative of Secretary-General (RSG),UN
Controller Warren Sach discussed the performance of the
Fund's investments and the overall financial situation.
Advisory Committee on Administrative and Budgetary Questions
(ACABQ) Chairman Rajat Saha presented the ACABQ's evaluation
of the Board's report. Following these presentations,
regional groups and individual Member States made statements
on the Fund's performance and the Board's activities.
Developing states commented on the Board's recent major
investment decisions and the failure to suitably support
developing markets and "economically disadvantaged" retirees.
Many Member States expressed views that there are areas for
improvement within the Fund's management of its portfolios
and investments. END SUMMARY

--------------
PRESENTATION BY PENSION BOARD CHAIRMAN
--------------


2. Vladimir Yossifov, Chairman of the United Nations Joint
Staff Pension Board, discussed key issues addressed in the
Board's report. Mr. Yossifov noted the Fund's fifth
consecutive actuarial surplus and the Board's subsequent
decision to reverse some of the economic measures taken in
the 1980's during the Fund's lean years. The report also
recommended that the General Assembly concur with the revised
UNJSPF-World Bank Group Transfer Agreement, and the Pension
Board's decision to admit the International Organization for
Migration (IOM) to the Fund. Mr. Yossifov mentioned the
contentious decision to "passively" manage the North American
equity portfolio, which has been under performing due to the
competitiveness of the market (see Reference A, USUN 01620).


3. Turning toward other administrative matters, the Chairman
noted that the revised budget for the 2006-2007 biennium
showed a net increase of $2.4 million, due to the Board's
recommendation of additional resources for various
administrative, investment and audit purposes. Aside from the
transition costs for moving the North American equities

portfolio to passive management, the Board agreed to
recommend five new posts for the Investment Management
Services (IMS). This is in response to growing concerns that
the Pension Fund staff has been outpaced by the rapid growth
of the Fund since 1990 (the Fund's assets currently amount to
$34.0 billion). Despite the formation of a Working Group to
review the size and composition of the Pension Board and its
Standing Committee, the Board decided to maintain its current
size and composition. The Chairman noted the Board adopted
other recommendations to improve efficiency, such as holding
annual sessions beginning in 2007 and attempting to limit the
agenda of the Board.

-------------- --------------
PRESENTATION BY THE REPRESENTATIVE OF THE SG:UN CONTROLLER
-------------- --------------


4. UN Controller Warren Sach then gave a statement on behalf
of the Representative of the Secretary-General (former
Under-Secretary for Management Christopher Burnham) regarding
the investments of the Pension Fund. The Controller first
reviewed the changes made during the biennium and the Fund's
performance, which improved over the past biennium. The
market value of the assets of the Fund reached an all-time
high of $35.145 billion, and the Fund increased its
investments to developing countries by 8 percent, to $1.8
billion. The Controller stressed the importance that the Fund
be forward-looking and careful in its investment. He also
expressed concern about the insufficient staffing to manage
such large assets, as well as about the chronic under
performance of the North American equity portfolio. He
recommended that risk control within IMS shift to a more
coordinated, total portfolio risk budgeting approach.

--------------
PRESENTATION BY ACABQ
--------------


5. Advisory Committee on Administrative and Budgetary
Questions Chairman (ACABQ) Rajat Saha then gave a short
verbal presentation of the findings of the ACABQ review of
the Pension Board's report (See Reference B, A/61/545).

--------------
VIEW FROM DEVELOPING COUNTRIES: G77 AND CHINA

--------------


6. The South African representative (speaking on behalf of
the G77 and China) highlighted the lack of reporting clarity
and the low investments in developing countries, as key
concerns. The G77 Chair requested explanations for the
failure to implement the recommendations of the Board of
Auditors, rationalizations for significant changes in
investment policy, and a clarification of the actuarial
dimensions of the Fund. The delegate also asked for an
explanation of the rationalization to passively manage the
North American equity portfolio, as the existing rationale
appears to be contradictory. G-77 expressed concern about the
small staff size managing the Fund, and stated that issues of
the governance of the fund should be reviewed, given its
growth and evolution since it was established. The G-77
reiterated that vacancies in the IMS and the secretariat of
the Fund should be filled expeditiously.


7. The Group emphasized the need to invest in developing
countries, citing specifically declining investments to Latin
America. The Chair stated that investments in Latin America
do meet the Funds four criteria of safety, profitability,
liquidity and convertibility and could serve as a spur for
economic growth and job creation. The G-77 expressed concern
about the lack of action taken by the Board in response to a
General Assembly request to provide information on pensioners
in Ecuador who have been negatively impacted by the
dollarization of their economies. The Group requested an
elaboration of measures to mitigate the consequences of the
dollarization process. The Rio Group and Ecuador reiterated
this concern in separate statements.


8. The Nigerian delegation additionally stressed the
inefficiency of having just one person manage the Fund, and
reemphasized the desire to see an increase in investments to
developing countries.

--------------
VIEW FROM THE RUSSIAN FEDERATION
--------------


9. The Russian Federation highlighted that shifting to a
passive management operation for the North American equities
market would involve a substantial cost and should be done in
a cost-effective manner.

--------------
VIEW FROM DEVELOPED NATIONS
--------------


10. Speaking on behalf of the European Union, the Finnish
delegation noted the eight (8) percent increase in
investments to developing countries and urged the Fund to
remain prudent with its investment policy due to the
unpredictable nature of currency and stock markets worldwide.
The EU expressed concern over the lax performance monitoring
by the Investment Management Service, the deficiencies in the
trade order management system and the yet unfilled positions
on risk management and compliance in IMS. The EU voiced
support for the Audit Committee and reiterated the importance
of appointing the experts, as recommended by ACABQ.


11. U.S. delegation welcomed the Board's decision to
passively manage the North American equity portfolio, and
recommended that the Secretariat report on the progress made
in implementing the plan. However, the U.S. delegate
reiterated concerns about the need to resort to a vote. The
U.S. then asked for clarification of the Board's decision to
allow the actuarial surplus to fall below one percent in
order to reinstate benefits. U.S. expressed reservations
about the decision to send the Fund's CEO to find out more
about "economically disadvantaged" retirees, as the General
Assembly had previously decided that no benefit improvements
could be made until benefit reductions were fully restored.
The U.S. also highlighted concern about the failure of the
Board to implement its Working Group's recommendations about
adjusting the size and composition of the Board. Finally, the
U.S. reiterated that, in the interest of transparency, the
need for Member States to have full and adequate access to
audit and oversight information.

--------------
COMMENT
--------------


12. Due to the rapid growth of the Fund's assets in recent
years, Member States are calling for improvements in the
Fund's management through greater hands-on supervision of its
assets and additional personnel support. The current trend of
growth is also prompting Member States from developing
countries to request improving the benefits for retirees, and
to invest in their markets, which may from the perspective of
developed countries substantially increase risk and adversely

affect the Fund's health. The issue of providing relief to
economically disadvantaged beneficiaries in Ecuador appears
to be one of the pillars of the G77 negotiation platform.
Additionally, G77 and NAM Member States are repeatedly
raising concerns that the former Under-Secretary-General for
Management, an AMCIT, circumvented established procedures to
implement his preferred Pension Fund management strategy.

BOLTON