UN fund increases indirect exposure

The $38 billion United Nations Joint Staff Pension Fund (UNJSPF) has begun to implement the recommendations of the Hewitt Ennis Knupp asset-liability study which, among other things, recommended higher allocations to indirect assets, emerging markets and private equity.

When the study was completed in May this year the fund’s strategic asset allocation stood at 60 per cent global equity, 31 per cent global fixed income, 6 per cent real assets and 3 per cent cash.

The Hewitt Ennis Knupp recommendation, which focuses on improving the UNJSPF’s 91 per cent funding status, recommended a shift to 60 per cent global equity, 25 per cent global fixed income, and 15 per cent indirect assets.

It is believed that the changes will increase the expected rate of return from the current 7.7 per cent a year to 8.1 per cent a year.

In addition, the consultant recommended the fund include higher exposures to emerging market equity and private equity in its global equity allocation.

In September the quarterly report on investments reported that “investment in the four private equity funds and commodities broadened the geographic diversification of the fund’s investments, further increasing the allocation to emerging markets”.

From June to September this year the UNJSPF reduced equities by more than 6.5 percentage points, increasing bonds and short-term assets.

As part of the asset liability modelling (ALM) Hewitt Ennis Knupp recommended the fund significantly increase and expand its exposure to indirect assets.

Previously it had a 6 per cent exposure to real estate, but the recommendation is a 10 per cent allocation to global real estate and 5 per cent allocation to commodities.

In addition, the recommendation was that fixed income includes a significant allocation to inflation-linked bonds.

While currency hedging was explored by the review, it was decided hedging would add little value but increase implementation costs.

The entire fund is managed internally, except for about 5 per cent in research-intensive in real estate, small-cap equities and emerging markets.

There are 17 investment professionals, out of a total of 53 people employed by the fund, who manage the entire portfolio internally. It’s a lean operation, with investment managers allocated according to asset class, then geography, with a particular emphasis on active management.

The ALM study is the first for the fund since 2006 when it was conducted by Pension Consulting Alliance and EFI Actuaries.

The UNJSPF has members located all over the world, and has 23 member organisations including the United Nations, the World Health Organisation, and the International Criminal Court.