VZCZCXYZ0025
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 
 
¶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