United Nations Secretary-General Antonio Guterres wants to overhaul management of the global body’s $61 billion pension fund after three years of underperforming returns and contentious delays in paying retirees.The UN Joint Staff Pension Fund is seeking candidates with “more than 20 years of proven progressively responsible experience” to replace Carolyn Boykin, the former chief investment officer of the Maryland State Retirement and Pension System, who took the UN post three years ago, according to an internal job posting seen by Bloomberg News.
Dina Medland writes:
The under-funding of pensions is a global issue, and one that keeps returning to the news with ‘corporate governance’ stamped all over it in bright red letters, as previously covered on Forbes. In Britain research out today shines a light on corporate priorities. With total pensions liabilities at £625 billion ($827 billion), FTSE100 companies were still able to pay four times as much in dividends in 2016 as they did in pension contributions.
Advocacy groups launched petitions and sent letters on Wednesday urging two of the biggest U.S. public pension funds to divest from an investment fund unless it stops paying one of President Donald Trump’s companies to run a New York hotel.<P><P>Reuters reported on April 26 that public pension funds in at least seven U.S. states periodically send millions of dollars to an investment fund that owns the upscale Trump SoHo Hotel and Condominium in New York City and pays a Trump company to run it, according to a Reuters review of public records.
Japan’s $1.2tn Government Pension Investment Fund is forging ahead with its gender equality drive, picking MSCI’s “Empowering Women” WIN index to benchmark its progress.
The giant fund has begun by shifting about 3% of its passive domestic equity investments, or around one trillion Japanese yen ($8.8bn), into index funds tracking three socially-responsible benchmarks, it said today.
One of these, MSCI’s Japan WIN index tracks companies that “encourage more women to enter or return to the workforce”. It ranks companies according to the gender balance of their new recruits, current workforce, senior management and executive board.
The other two indices it picked today – MSCI’s Environmental, Social and Governance Select Leaders and the FTSE Blossom Japan index – track Japanese firms that perform well on a more general social-responsibility agenda.
So you still think Environmental, Social and Governance (ESG) issues are not terribly ‘gritty’? Think again. Under the auspices of an ESG issue brief, MSCI – whose indices and analytical information help investors build and manage portfolios – recently published a report on concerns around the under-funding of global pensions.
Its results are startling. The ratio of under-funding is worst in North America, followed by Europe.Britain’s BT has a whopping 36% gap between its pension obligations and the resources set aside to fund them, second behind America’s DuPont, which has an even larger 42% funding gap. BT has around £50 billion ($62.4bn) of underlying pension liabilities, the largest of any U.K. company.
Citing Wells Fargo’s “venal abuse of its customers,” the California treasurer took the unusual step on Wednesday of suspending many of its ties with the San Francisco bank as it continues to reel from the scandal over the creation of as many as two million unauthorized bank and credit card accounts.The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.
On Tuesday alone, he said, he had pulled Wells Fargo off two large municipal bond deals.
“How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who placed their financial well-being in its care?” Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members.
Christopher O’Dea writes in Investments & Pension Europe:
The dominant theme in the governance of US public pension funds these days is ‘investors, govern thine selves’. Many pension funds have invested in activist hedge funds or established their own corporate governance functions. These are designed to press corporate leaders and their boards to develop better strategies, improve execution and upgrade talent and technology to more effectively address an increasingly complex and volatile business environment. However, many US pension plans are in dire need of a governance overhaul themselves.
The challenges US pension trustees are grappling with today reflect the evolution of pension systems in the country, [pension consultant Rick] Funston says. “A good many of the pension systems, if not all of them, in fact, evolved from a sole fiduciary form of governance under treasurers and comptrollers, to independent fiduciary boards,” he says. But the question really is how independent are they? “In a number of cases,” he says, “legislatures still retain budgetary control, so a question remains how autonomous are the trustees, and how much freedom do they have to act, to do what they need to do in order to carry out their fiduciary duties.”
Systemic underfunding is the primary result of the governance gap. Since 2000, the study says, US public plans, in the aggregate, have gone from fully funded to 74% funded. In 2014, 63% of plans were less than 80% funded – the level deemed ‘at risk’ for private-employer pension plans under the Pension Protection Act – and 20% were less than 40% funded. To compensate, the study found, public pension plans have increased the risk profile of their investments. In 1952, public employee defined-benefit plans invested 96% of assets in cash and fixed-income investments; that percentage fell to 47% in 1992, to 27% percent in 2012, and to less than 19% in 2015.
The core issue is that “public pension plans make unreasonably high rate-of-return assumptions”, the study says. “The implied risk premium in state and local pension plans’ rate-of-return assumptions has grown from 30 basis points over 30-year Treasuries to 480 basis points today.” If public pension plans assumed a riskless rate of return, the study says, “state and municipal pension plans would be only 50% funded”.