Portfolio Risk Analysis and Performance Attribution System for Investment Management Division of ...

A. Background 1. The United Nations Joint Staff Pension Fund (“UNJSPF” or “the Fund”) was established by the General Assembly of the United Nations ("UN") to provide retirement, death, disability and related benefits for the staff of the UN and other international intergovernmental organizations admitted to membership in the Fund. 2. The UNJSPF is an internally managed fund, with over US $56 billion under management as of 31 December 2016. At the same date, the Fund’s assets were invested in 25 currencies and in 34 countries (including emerging markets), in regional institutions and international institutions. Please consult the Fund’s website at http://imd.unjspf.org/ for a breakdown of the Fund’s assets per type of investment. B. Purpose of this Request 3. UN is conducting a search for a Portfolio Risk Analysis and Performance Attribution System, which will effectively evaluate and monitor the risk and performance of the Fund’s global portfolio(s) and assist with the reporting of such information (the “PRA System”). 4. From a risk management perspective, monitoring the risk and performance of global portfolios amounts to establishing a “Risk Policy” consistent with effective reporting, and evaluating/analyzing the risk and performance of global portfolios amounts to establishing a “Risk Strategy” consistent with valuable reporting (capturing meaningful risks & returns). That is, the Portfolio Risk Analysis and Performance System will be used to dynamically adjust and update reports, allocation limits, stress testing, sensitivity analyses, factor analyses, tracking risk limits, and risk budget so they are in line with overall fund’s risk tolerance and target return. The analytics, research, data feeds and integrity, onsite service and educational spillover, training, technical and nontechnical support will help IMD’s Risk Team to efficiently translate IMD’s risk management practices into portfolio management implications. 5. The PRA system will need to accomplish the tasks and satisfy the requirements highlighted below: (i) Investment Policy Compliance. Monitor Investment Policy compliance taking into consideration the following factors, such as strategic asset allocation relative to strategic policy guidelines; ownership limit; and individual security positions. (ii) Return Assessment: Comprehensive reporting at total portfolio, sub-portfolio, industry, sector, position levels, including: Asset class exposure; geographic region exposure; currency exposure; market capitalization exposure; economic revenue exposure; risk/return profile calculation; provision of covariance analysis; and performance attribution. (iii) Risk Assessment: Analyze the amount of risk contributed by each investment decision and quantify various risks driving the excess returns. Statistical distributions used for risk measurement are computed from asset classes’ “pricing functions” (equity, fixed income, options, FX, Mortgages, etc.) based on risk factors such as market data: equity prices, foreign exchange rates, commodity prices, interest rates (marked-to-market). (iv) Coverage of Specific and General Risk Factors: Specific risk factors for equity securities are log returns of stock prices, as for bonds, free and risky interest rates are typically used as risk factors in the Net Present Value pricing function of generic debt securities. General risk factors, such as style, size, dividend yields, momentum, volatility, P/E ratio etc. are also used to derive similar risk measurements. Access to market data indices such as official benchmarks, which can be downloaded onto other applications for comparative analyses. (v) Risk Budget Compliance and Investment Implications: Setting up risk budgets for SAA allocation limits is compliant with tracking error thresholds or risk budgeting defined under large changes (+/- 5% - 10%) in allocation. (vi) Asset Liability Management. Surplus risk measures and liability modeling; able to map liabilities into corresponding debt security type, generic bonds, and inflation linked etc. (vii) Framework and Specifications. Portfolio construction, and portfolio aggregation will have greater impact on returns (relative, and especially absolute) as the fund’s size grows in market value, due to market concentration, suitable investment universe, restricted securities, mid-caps exposure, small caps, ESG, real assets, alternative investments, all presenting ongoing challenges to portfolio diversification, risk, and performance measurements.