Dear participants, dear retirees and dear beneficiaries,
As confirmed by the last actuarial valuation, our Pension Fund is in a strong financial position and fully funded, even under the difficult global financial circumstances we are all facing. At the Office of Investment Management (OIM), we are ever mindful of our responsibilities not only as employees of the Fund, but also as participants and future retirees. Please be assured that the interests of the Fund are of paramount consideration in every decision we take.
Our Fund operates according to these three important values stemming from the values and principles of the United Nations:
1) we embrace our fiduciary duty to protect the assets of our Fund;
2) we are open and transparent and will always share information in a truthful way;
3) we are accountable to all our stakeholders, and we value productive and respectful dialogue.
As such, in keeping with our continuous commitment to transparency, we want to update you on the status of the plan to migrate – safely and effectively – the fixed income portfolio to the new asset allocation and benchmarks by September 2022, as endorsed by the Fund’s governing bodies in 2021.
Given the recent positive trend in the performance of two sub-asset classes of the fixed income portfolio, US Treasuries and Mortgage-Backed Securities, OIM Fixed Income team will continue to manage 100 per cent of these two portfolios internally, compared to the previous plan to manage 50 per cent internally and 50 per cent externally.
Regarding the fixed income credit portfolio, the team will temporarily manage between 15 per cent and 20 per cent of this portfolio internally, and between 80 per cent and 85 per cent externally. This is a shift from the previous plan to temporarily manage the credit portfolio 100 per cent externally. Overall, the total part of the fixed income portfolio that will be temporarily managed externally will represent between 5 to 7 per cent of the Fund’s total assets, compared to 18 per cent under the previous plan.
As we have previously stated, these are short-term tactical decisions that will provide additional support in the management of certain portfolios to bridge capacity gaps inside the Office of Investment Management and ensure the safe and efficient management of the portfolios. Our Pension Fund has done this several times over its many years of successful operations without any issues in portfolios such as small capitalization public equities and even fixed income. As such, it is foreseen that once the Fixed Income team reaches full capacity, including the recruitment of additional investment officers with the necessary expertise, the credit portfolio will be entirely managed on an internal basis. The OIM Fixed Income team will reassess this whole approach by 31 March 2023.
We are committed to the principle of managing the maximum percentage of our portfolios internally, since it is the most cost-effective approach. However, we must also continually seek to mitigate risks in the management of those portfolios.
We are aware of the cost-benefit analysis undertaken by a group concerned about the plan to use external managers on a temporary basis for a part of the fixed income portfolio. We have reviewed the analysis and find it to be static and partial, without consideration of implementation risks or the current capabilities of the team, even suggesting that we tolerate underperformance for certain portfolios.
For those who wish to better understand what the fixed income portfolio is and the factors that the experts consider in its management, we once again invite you to follow the sessions being conducted by Mr. Tomasz Wojciechowski, Head of OIM Fixed Income team. You can find the recordings of the first five of the eight sessions and the meeting links to follow the forthcoming sessions on our website here. The remaining sessions will take place every Tuesday at 10:00 a.m. New York time in the next three weeks.
Let me reiterate that the use of external managers is a short-term tactical approach to support the OIM teams with the capacity to manage specific portfolios or sub-portfolios. There is no strategy nor plan to completely outsource the management of the Fund’s assets. We are committed to continuing to manage the Fund’s portfolios safely and efficiently as ever. We hope that such assurances will provide peace of mind regarding the financial health of your pension.
Pedro Guazo is the Representative of the Secretary-General for the investments of the UNJSPF assets.