GLOBAL - The United Nations Joint Staff Pension Fund (UNJSPF) has "fared better than most pension funds" in the current financial turmoil, despite losing 12.2% over the year so far.
In an update on the impact of the financial crisis on the pension fund Bernard Cochemé, the chief executive, confirmed the fund's ability to meet pension benefit payments "remains fully intact".
However, Cochemé said the financial crisis "is the cause of great concern among pension funds and other institutional investors around the world where many have seen the value of their investments plummet" - including the UNJSPF.
At the end of June, the investment report for the second quarter of 2008 revealed the pension fund had lost 1.7%, or $1.5bn (€1.1bn), to bring the value of its assets to $39.9bn. (See earlier IPE article: UN pension fund sees $1.5bn first half loss)
But in his statement Cochemé admitted the fund's overall market value has dropped 12.2% in 2008, and at the beginning of October the value of the fund's portfolio had fallen to $32bn, a fall of £9bn from the $41.4bn at the end of December 2007.
Despite this fall in value, the pension fund highlighted since its establishment in 1949 the fund has been negatively impacted by volatility, but "each time the impact has been temporary and the portfolio then rebounded and continued to grow".
For exmaple, he claimed the UNJSPF declined by around $4bn in the financial crisis of 2000-01, but by 2002 the market value "began a long and sustained rebound until the end of 2007".
In addition, he claimed the long-term strategy adopted by the fund has meant since 1960 the UNJSPF has generated average annual returns of 4.4% in real terms, which is above the 3.5% objective used in the actuarial valuation.
Cochemé said: "It should be kept in mind that decisions affecting the investments of the fund are made and will continue to be made on the basis of long-term investment strategies and objectives, as decided upon by the Secretary General after consultation with the fund's investment committee and in light of observations and suggestions made by the pensions board."
The chief executive also stated that in the short-term "the fund is practically unaffected by the current market conditions and I have no concerns about liquidity for the payment of benefits".
In his comments, Cochemé claimed the gap between contribution income and benefit payments "is very small" compared with the market value of the portfolio, so any shortfall can be covered by the liquid portion of the portfolio, which means as it doesn't have to sell its assets to cover short-term funding issues, it can adopt a "very long-term investment horizon".
That said, Cochemé admitted in the long-term high market volatility or poor continuing financial market performance "may potentially affect the fund", for example if the long-term real rate of return on the portfolio fell below the 3.5% actuarial objective over several years.
Although the UNJSPF has in place "sound governance mechanisms" - including close monitoring of investment performance, Asset Liability management studies, and triennial valuations - that would allow it to take the necessary steps to maintain the long term actuarial balance and solvency of the fund.
Overall, Cochemé stressed the fund's financial position is "safe" as a global diversification policy, combined with the application of guidelines on profitability, safety, liquidity and convertibility, has "enabled the fund to build over the years significant reserves which are invested under the fiduciary responsibility of the UN secretary-General in well diversified assets with a very long-term horizon".
If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com
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