FC 104/4 |
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FC 104/4 |
Hundred and Fourth Session |
Rome, 15 to 19 September 2003 |
Staffing of the Treasury Function |
1. During its last session in May 2003 the Finance Committee noted the concerns expressed by the Advisory Committee on Investments (ACI) that the Treasury Branch’s capacity to manage investments might need to be further strengthened and requested the Secretariat to make a proposal in this regard, including the consideration of the possible application of investment income for this purpose.
2. The Finance Committee, at its 32nd Session held in October 1974 first established the principle of charging various expenses related to the generation of interest income to Miscellaneous Income of the Regular Programme rather than to the budget of the Organization. The expenses included items such as telephone service and Reuters Money Rates Service, Telex line to Treasury, the cost of subscriptions to bank credit rating services and the cost of financial newspapers.
3. In May 1988, the Finance Committee approved two additional areas of expenses to charge to interest income:
4. On this basis, the following amounts were charged to miscellaneous expenses in 2002.
| Salary cost (one P-4 for six months and one P-5 for six months) | USD 122,000.-- |
| Advisory Committee on Investments costs | USD 19,000.-- |
5. The investment holdings of the Organization have reached considerable levels and amount to over USD 580 million in market value as at 31 December 2002.
| Total Short-term Investments | USD 434,149,933 |
| Total Long-term Investments | USD 145,886,347 |
6. Figure 1 below shows cash balances and short term investments for the General Fund and Extra-budgetary Funds from 1994 to 2002.
7. Table 3 below shows a comprehensive list of charges paid to external service providers for the generation of investment income in 2002:
| Management Fee Fiduciary Trust | USD | 557,391 |
| Management Fee Western Asset Mgt (Sept-Dec) | USD | 42,955 |
| Management Fee Wellington (Sept-Dec) | USD | 48,363 |
| Management Fee Northern Trust Government Select Fund (estimated) | USD | 363,000 |
| Custodian Fees Northern Trust | USD | 88,181 |
| Total Fees | USD | 1,099,890 |
8. The ACI, during their Session in April 2003, noted this increasing level of holdings and recommended that FAO assume greater involvement in the management of investments by improving its monitoring capacity. The Committee suggested a more precise analysis of the performance of investment managers on a monthly or quarterly basis, focusing on any under- or over-performance of the different investment classes. It was suggested that strengthening the capacity of FAO Treasury would allow the full exploitation of numerous tools and alert systems developed by the asset custodian, Northern Trust, and would further improve the level of control over the external asset management firms. Such an approach would also reduce risk in current difficult market conditions and should also result in better risk-return management.
9. The Secretariat wishes to respond to these concerns and address the increasing volumes and complexity of investment transactions by establishing one additional post of Investment Officer, and requests the approval of the Finance Committee to charge the expenses related to such post to the investment income component of Miscellaneous Income of the Regular Programme.
10. On a separate matter concerning costs which could be charged to Miscellaneous Income, the Finance Committee will recall its discussions in September 2002 on the asset and liability study to be carried out this year. The study was recommended in May 2002 by the Advisory Committee on Investments to provide the Organization with essential information by forecasting staff-related liabilities over time and revealing long term investment portfolio asset allocation strategies under different scenarios. The study will address the issue of currency composition of the liabilities, and the associated effect on plans for the assets and determination of new benchmarks in line with the use of the funds.
11. A specialized firm has been engaged to carry out the Asset and Liability study and work began in July 2003. The total cost of this study will be USD 88,200.
12. In view of the directly related impact of the Asset and Liability study on the Organization’s long-term investments activity, the Secretariat requests the Finance Committee’s approval for a one-time charge of such cost to the investment income component of Miscellaneous Income of the Regular Programme.