UN Pension Fund back on track after 2022, as low costs pay off

The United Nations Joint Staff Pension Fund, UNJSPF, is clawing back 2022 losses with assets under management currently valued at $82 billion and the fund experiencing a positive return of 5 per cent so far this year.

Robust returns between 2019 and 2021 had swelled the UNJSPF portfolio by 30 per cent to a record high in its 75-year history to over $91.5 billion by the end of 2021. Come 2022, and the ravages of high inflation and ensuing high interest rates impacting the long-term value of bonds and equity, and assets under management had fallen 14 per cent by the end of the year, said Pedro Guazo, representative of the Secretary-General for the investments of the assets of the fund, speaking in a recent UNJSPF Global Town Hall.

Guazo predicted the fund would be back up to $90 billion assets under management in the next two to three years. UNJSPF targets a long- term return of 3.5 per cent and has a 20-year return of 5.35 per cent. Despite the plunge in AUM last year, Guazo said UNJSPF had retained its fully funded status.

“The market value of the assets is way higher than the liabilities,” he said.

Low costs and efficiency compared to peer funds are an important contributor to the portfolio’s health.

“We manage to get the same returns with costs 30 per cent lower than comparable peers,” Guazo said, attributing low costs to the fact around 82 per cent of the portfolio is managed internally.

Around 50 per cent of the portfolio is invested in public equity versus 30 per cent in fixed income. The bulk of the public market portfolios are managed internally apart from an externally managed small cap equity portfolio and a new allocation to corporate bonds.

The global equity allocation is divided into four teams – North America, Europe, Asia Pacific, and Global Emerging Markets – that follow a disciplined investment process, centred on equity screening, fundamental analysis, and frequent dialogue with corporate management teams. The focus is on high-quality companies able to generate stable cash flows, a return on investment above their cost of capital, and the ability to achieve sustainable and profitable growth.

In a recent change of strategy, UNJSPF introduced a new benchmark for fixed income that incorporates a corporate bond component, broadening the pension fund’s asset mix. UNJSPF uses external managers in the allocation as it continues to develop and strengthen in-house capabilities. Over time it expects that the internal fixed income team will progressively assume a larger management of the portfolio as resources and capabilities are added.

 Private markets

Externally managed private market allocations comprise private equity, real estate, and real assets. Strategy in real estate – the portfolio dates from 1971 – is focused on manager selection. UNJSPF invests in over 128 externally managed funds globally.

The allocation target is approximately 50 per cent core “open ended” funds and 50 per cent non-core “closed end” funds. Core funds are diversified by geography and property type, and non-core funds are diversified by vintage year, geography, property type and risk profile.

Real assets, primarily infrastructure but also timber, agriculture, and commodities, are also managed externally.

Infrastructure investment, first begun in 2011, is focused on moderate leverage, strong cash flow yield and a demonstrated track record of profitable realizations.

Private equity, launched in 2010, consists of a select number of externally managed funds and co-investments diversified by vintage year, private equity substrategy, sector and geography.