TA-4922 (PAK): Sindh Growth and Rural Revitalization Program Sindh Fund Management House Strategic...

TA-4922 (PAK): Sindh Growth and Rural Revitalization Program

Sindh Fund Management House Strategic Plan

Presentation to the

Boards of the Sindh Pension Investment FundSindh General Provident Investment Fund

Martha A. KellyDirector, The Aries Group, Ltd.

14 July 2009

Nasir Whaind, ASAActuary

2TA-4922 (PAK): Sindh Growth and Rural Revitalization Program

Purpose of Funds: GPF Historical approach: Employee subscriptions considered

“revenue” and advances/final settlements as “expenditures” Immature scheme (growth in active employees exceeding

growth in retirements): net incomes resulted – passing financing burden onto future years

Lack of assets resulted in interest rate determination being “notional” – caused windfall gains in some periods; negative returns in others

Prudent approach: Employee subscriptions directed into separate Investment Fund from where benefits are paid Periods where subscriptions exceed benefits lead to creation

of surplus monies from which assets are purchased – these can be private sector or public sector assets

Results in accurate and explicit and recognition of financial obligations – improving financial planning and management – interest rate results directly from asset performance


Purpose of Funds: Pension Historical approach: Employer financed only current benefit

payments as “expenditures” Immature scheme: created impression of scheme being “cost free” –

almost entire burden passed onto future years – impairing prudent and knowledgeable policy making

Scheme approaching maturity: creates impression of an unsustainable financial burden – potentially focusing policy dialogue in wrong direction

Prudent approach: Separate Investment Fund created for receipt of contributions from budget and from where benefits are paid Periods where contributions exceed benefits lead to creation of

surplus monies from which assets are purchased – these can be private sector or public sector assets

Explicit formulation of financing policy – contributions can vary from “benefits only” up to “accrued cost for the period” – may result in small or large levels of asset buildup over certain periods

Results in explicit recognition of funded and unfunded financial obligations – improving financial planning, management and benefit policy formulation


Changing Maturity Level Illustrated


Historical to Prudent Transition GPF:

Create Investment Fund for GPF: done Stop treating new subscriptions as “revenue” direct towards the

Investment Fund: partially being done Start transferring interest on unfunded portion to Investment Fund:

to be started Develop a schedule for amortizing unfunded liability: to be started

Pension: Create Investment Fund for Pension: done Revise process directing contributions into Investment Fund and

pension benefit payments from Investment Fund: to be done Determine annual cost of scheme on recognized principles and

report funded versus unfunded liabilities, contributions versus costs: in process

Formulate financing policy including level of pre-funding of benefit payments: partially started and also in process

Government access to GPF assets still possible through structured securities


Sindh Pension Investment Fund

Sindh GP Investment Fund

Peoples’ Housing Cell Investment

Fund

Sindh Social Relief Investment

Fund

Sindh Viability Gap Investment

Fund

Pension Board

Social Relief Board

Shares Boards with Pension and / or GP Fund

GP Fund

Board

Current Situation Investment Funds 1

Multiple investment funds with various shared boards Oversight

members do not have substantial investment

experience


Current Situation

Investment Funds 2

Government of Sindh Investment FundInception

DateValue as at FY 2008-09

in Rs millions

Sindh Pension Investment Fund 2002-03 Rs 22,897.540

Sindh GP Investment Fund 2007-08 Rs 6,410.990

Sindh Social Relief Investment Fund 2005-06 Rs 10,945.500

Sindh Viability Gap Investment Fund 2008-09 Rs 3,069.819

SASO Pensioners Fund 2008-09 Rs 127.420

Sindh Bank Fund 2008-09 Rs 2,000.000

Peoples’ Housing Cell Investment Fund 2008-09 Rs 1,769.105

Provincial Disaster Cell Fund 2008-09 Rs 100. 000

Total Rs. 47,320.374 Source: Government of Sindh Finance Department. October 2008 and February 2009.


Current Situation Investment Funds 3

GoS is liable for gains and losses of the Investment Funds

Despite the current oversight structure of a large accumulation of assets there is a lack of Checks and balances for effective

safeguarding and reporting to Boards Institutionalized structure to ensure that

investment returns can be maximized within the GoS’s investment risk profile


Solution: Create SFMH FD has proposed creation of SFMH

Purpose To centrally manage Investment Funds

utilizing full-time dedicated professional investment staff Investment policy Investment functions

To enhance oversight with substantial investment experience


Sindh Pension Investment Fund

Sindh GP Investment Fund

Peoples’ Housing Cell Investment

Fund

Sindh Social Relief Investment

Fund

Sindh Viability Gap Investment

Fund

Sindh Fund Management HouseBoard

Proposed Changes

SFMH Investment Unit

A P P R O V E D I N V E S T M E N T P O L I C Y

GoS appointsBoard members with

substantial investment experience

Independent Auditor1 chairman, 5 members with substantial investment experience


Sindh Fund Management House 1

Create Sindh Fund Management House Board Majority of members would be investment

professionals experienced in investments, financial institutions

Control an independent budget for the Board and Investment Unit – done

Board appoints Independent Auditor to conduct annual audit of Investment Funds

Create Investment Unit To manage day-to-day investment decisions staffed

by investment professionals who have significant previous experience


Proposed Transition FD is hiring initial staff to manage Investment

Funds Investment manager Investment analyst

ADB to hire investment specialist Investment manager and specialist to prepare

structure of Investment Unit and Board documents ADB to hire legal investment specialist

To draft SFMH Act and required legal documents GoS to approve Act and submit to Provincial

Assembly


Creation of SFMH Passage of the SFMH Act Appointments of the chairman and

Board members Board members would establish the

Investment Unit

TA-4922 (PAK): Sindh Growth and Rural Revitalization Program Sindh Fund Management House Strategic...

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