2024 Public Sector Perspectives

Public Pension Funds: Seven Steps to Operational Alpha Tobias Cheung Public Sector Group, Corporate Banking Winnie Zhang Public Sector Group, Corporate Banking Michael Paulus Head of Asia Public Sector Group, Corporate Banking A s the burdens on public pension funds grow due to demographic and other pressures, operational efficiency has never beenmore important. To outperform, funds need to optimize bank and custodial relationships and accounts and deploy technology to enhance visibility and control, lower costs and reduce risks. The ultimate goal of public pension funds (PPFs) is to provide pension benefits to pensioners on their retirement. PPFs’ success is therefore important for social stability. Given the need to honor their commitments to pensioners in a timely and sustainable manner – and the fact that PPFs are often in receipt of sizeable sums of taxpayers’ money – it is critically important that they operate efficiently. Operational efficiency for pension funds is defined by how effectively they manage their investment processes and risk, asset and liability management (which ultimately determine their investment returns) as well as their management of operating expenses, such as records administration, pension payments and management of cash. While investment- related gains are clearly central to PPFs’ ability to meet their obligations to pensioners, managing operating costs is also critical. Comparing PPFs in different jurisdictions is a challenge given varying accounting standards. It is clear that operating expenses vary widely among PPFs, especially when assets under management are taken into consideration. Partly this is due to size; larger PPFs may be able to achieve economies of scale. Many other factors also impact operational efficiency, such as the extent to which technology and automation are deployed to streamline operational processes, reduce manual work, and improve accuracy. Citi Perspectives for the Public Sector 49 Given the need to honor public pension funds’ commitments to pensioners in a timely and sustainable manner – and the fact that PPFs are often in receipt of sizeable sums of taxpayers’ money – it is critically important that they operate efficiently. 48 Public Pension Funds: Seven Steps to Operational Alpha