FC 102/5

Finance Committee

Hundred-and-Second Session

Rome, 5 - 9 May 2003

Report on Investments 2002

Table of Contents


1. This document is submitted to the Finance Committee for information, in accordance with Financial Regulation IX, which provides, in part as follows: “The Director-General may invest monies not needed for immediate requirements seeking, wherever praticable, the advice of an Advisory Committee on Investments. At least once a year the Director-General shall include in the financial statements submitted to the Finance Committee a statement of the investments currently held.”

Long-Term Investments

2. The long-term investment portfolio represents an accumulation in the value of securities and re-invested income over the last 30 years.

3. The principal objective of the portfolio is to fund the Organization’s share of staff-related liabilities:

4. An actuarial valuation of these liabilities has been performed each biennium since 1996-97. The 31 December 2001 valuations show the Organization’s share of aggregate staff-related liabilities to be USD 297 million, as disclosed in Note 18 of the Audited Accounts FAO 2000-01. The value of the assets in the long-term portfolio is less than 50% of the liabilities (see point 9 below).

5. Table 1 shows the evolution of the long-term investment portfolio since 1993 for both market and cost values compared to the actuarial valuations of the staff related liabilities (from 1997).

Table 1

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6. The investment guidelines for the asset manager (Fiduciary Trust International) follow a combination of instruments with a range allocation of:

7. The measurement of performance is by comparison to the following benchmark:

8. This benchmark combination fairly represents the geographical and sector allocation of the portfolio and has been reviewed by the Investment Committee, Advisory Committee on Investments and by the Organization’s financial consulting firm, Cambridge Associates.

9. Table 2 illustrates the performance of the long-term investment portfolio expressed in percentage terms against the benchmark since 1993.

Table 2

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10. The balances in the long term portfolio amounted to:

As of 31 December 2001 As of 31 December 2002
Market USD 179,817,614.41 USD 145,886,397.07
Cost USD 169,536,491.79 USD 138,321,145.58

11. During 2002, the World Food Programme withdrew its share of the portfolio assets (11.25161%) in order to assume full control and responsibility for such holdings.

12. Movements in the long-term portfolio in 2002 are summarized as follows:


Market Value 31/12/2001 179,817,614.41
Net variance of unrealised gain/losses -2,715,871.13
WFP withdrawal of assets -17,932,868.88
Income dividends and interest 5,093,288.21
Realized losses -18,135,183.24
Management fees paid to Fiduciary -557,391.63
Reimbursement by Fiduciary of 2000 management fees 210,307.18
Compensation by Fiduciary on Enron delayed sale 194,684.00
Custodian fees paid to Northern Trust -88,181.85
Market value 31/12/2002 145,886,397.07

13. Performance of the long-term portfolio as of 31 December 2002:

3 Years
5 Years
10 Years
     Portfolio -9.29% -12.31% 1.23% 6.82%
     FAO TotalBenchmark -7.05% -8.87% 0.76% 6.41%
     Portfolio -27.26% -23.38% -2.48% 6.24%
     MSCI – AC World Free (Gross) -18.98% -16.30% -1.90% 6.29%
     Portfolio 21.97% 8.39% 5.88% 7.32%
     JP Morgan Global Broad Bond Index 19.97% 6.75% 5.89% 6.63%

14. Reports with details on the securities held and the composition of the long-term portfolio at 31 December 2002 will be distributed during the session.

Short Term Investments

15. Short-term investments consist largely of Trust Fund deposits held pending disbursements on project implementation and cash representing the reserves of Regular Programme and other activities.

16. Until September 2002, the total of these short-term holdings was invested by Northern Trust Company in their Government Select Fund.

17. From September 2002 onwards the strategic decision taken in 2001 to mandate specialized asset managers for the short-term investments was implemented through engagement of two new managers: Wellington Management Company and Western Asset Management.

18. Balances of short-term investments at 31 December 2002 were as follows:

Western Asset Management USD 79,023,002.00
Wellington Management USD 119,178,288.20
Northern Trust Government Select Fund USD 235,948,642.76
Total USD 434,149,932.96

19. Performance of the short-term investment managers in 2002

Last quarter
of 2002
1 Year
Western Asset Management 0.60% 3.05 0.98%
Wellington Management 0.71% 3.34 1.09%
Benchmark 0.56% 2.20 0.67%

Benchmark = Merrill Lynch Libor 3 month Constant Maturity + 25 Basis Points


Last quarter of 2002

1 Year

Northern Trust
Government Select Fund 0.41% 1.72%
Benchmark 1 0.45% 1.85%

20. The returns on the Portfolios are shown above in point 19. It must be noted that the observation period for the two new portfolios is very short and the difference in investment guidelines between the Northern Trust and the two other mandates is considerable.

21. Reports with details on the securities held and the compositions of the Western and Wellington portfolios at 31 December 2002 and a description of the Northern Trust Government Select Fund will be distributed during the session.

Actions and major events 2002

22. World Food Programme withdrew their portion of the assets for the Separation Payments Scheme and Compensation Plan Reserve Fund from the overall portfolio held by FAO. Based on the latest available actuarial valuation of these schemes and based on the market value of the Long-term portfolio as of 31 October 2002, USD 17,932,868.88 was transferred to WFP, representing 11.25161% of the portfolio.

23. The recommendation of the Advisory Committee on Investments to diversify placement of short-term fixed income assets with two specialized fixed income managers has been implemented in September 2002.

24. During 2002 arrears payments amounting to USD 106,708,945.22 were received, significantly improving the short-term liquidity of FAO General Fund.

25. Table 3 shows the cash balances for the General Fund and Extra-budgetary Funds from 1994 to date. 2002 values are shown over 12 months. The sharp increase of General Fund balances in 2002 is due to the receipt of arrears.

Table 3

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Measures and actions for 2003

26. The Advisory Committee on Investments meets in April 2003. The highlights of this meeting including any recommendations will be reported during the May 2003 session of the Finance Committee.

27. The FAO Investment Committee during its first quarterly session in January 2003 noted the continuing underperformance of the long-term portfolio managed by Fiduciary Trust International, the unsatisfactory services and the distant relationship maintained by the managers and therefore recommended the cessation of their services. The Director-General has approved this recommendation. An oral update on the status of the termination of the contract with Fiduciary and the new temporary arrangements for the portfolio will be provided during the May 2003 session of the Finance Committee.

28. Following the recommendations of the Advisory Committee on Investments in May 2002 and subsequently endorsed by the Finance Committee, a detailed asset and liability study has been initiated with a specialized firm. First results are expected by the 3rd quarter 2003 and further action including new asset allocation policies will be elaborated. An update will be presented during the next sessions of the Finance Committee.


1 No benchmark is defined or agreed with the asset manager for the Northern Trust investment. The portfolio is in any case measured against the Merrill Lynch 91 Day T-Bill Index and is used for comparison purposes.