In this column, the Chairman of the Pension Fund Governing Board (PFGB) presents the Board's latest main decisions, initiatives and accomplishments to the Fund's members and beneficiaries.
Since my last report in October, the PFGB has passed several milestones in actuarial, technical and investment matters.
The PFGB has completed an analysis of a request by the European Organisation for Astronomical Research in the Southern Hemisphere (ESO) to reduce the increased cost of pension insurance for new ESO recruits that has been caused by the increased CHF/€ exchange ratio. Currently the staff of ESO are admitted to the CERN Pension Fund, pursuant to a co-operation agreement between CERN and ESO dating back to 1968. This analysis assessed the actuarial, financial, administrative and legal implications, and is scheduled to be presented to the CERN Council and the Finance Committee in December.
After an open tendering process the PFGB has selected Buck Consultants Limited to be its new actuary. Buck Consultants is one of the leading benefit consulting and actuarial firms in the world, and counts several intergovernmental organizations as its clients, including the United Nations, the World Bank, and the International Monetary Fund. The Fund looks forward to benefiting from Buck Consultants’ extensive experience and expertise, particularly in view of the full actuarial study to be performed in 2013. I want to take this opportunity to thank the outgoing actuaries, Pittet Associés, for their work and dedication to the Fund over the past three decades.
The Fund has also approved the new Rules of Procedure of the Governing Board and of its subsidiary bodies, which replace those from 2006.
On the investments side, the implementation of the Fund’s capital preservation strategy is progressing according to plan. Approximately 50% of the portfolio has been redeployed to capital preservation strategies, with the objective to reach 80% by the end of 2013. The performance of the Fund year-to-date is on track to meet the annual actuarial return objective of 3% above inflation: as of 30 November 2012, the Fund had returned an estimated 6% year-to-date.
The Fund is further strengthening its performance monitoring process, by introduction of an additional performance indicator: the quality of returns. Measurements of the quality of returns seek to evaluate how efficient the Fund has been in reaching its investment return objective, while optimizing risks. Further enhancements of the Fund’s risk control process by the Investment Committee have also been implemented.
Along with the progress in the implementation of the capital preservation approach, one of the main achievements of 2012 has been the implementation of the full audit cycle, in compliance with the provisions of Section 5 of the Pension Fund Rules, which came into force in 2011. This audit cycle includes (i) a full annual audit of the Fund’s accounts and financial statements by CERN’s External Auditor on behalf of the CERN Council, and (ii) on behalf of the Pension Fund Governing Board a full annual audit of the Fund’s accounts and financial statements by an auditor specializing in pension fund matters, as well as an annual audit of the Fund’s Internal Control System (ICS). The Fund’s ICS documents the activities and procedures performed by the Fund, and the objective of the ICS audit is to ensure compliance with documented procedures.
Let me conclude this report with the welcome news that the CERN Pension Fund recently won two international awards: the 2012 award for “Best Risk Management Solutions” by Investments & Pensions Europe (IPE), and the “2012 Industry Innovation Award” in the category "Public pension plans below $15 Billion,” by Asset International – Chief Investment Officer (aiCIO) magazine (see the corresponding article in this issue). There were a large number of nominations by prominent institutional investors for both awards, which were judged by international juries.
Chairman, Pension Fund Governing Board