1. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program Sindh Fund Management House Strategic Plan Presentation to the Boards of the Sindh Pension Investment Fund Sindh General Provident Investment Fund Martha A. Kelly Director, The Aries Group, Ltd. 14 July 2009 Nasir Whaind, ASA Actuary

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

3. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 3 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

4. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 4 Changing Maturity Level Illustrated

5. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 5 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

6. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 6 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

7. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 7 Current Situation Investment Funds 2 Government of Sindh Investment Fund Inception Date Value as at FY 2008-09 in Rs millions Sindh Pension Investment Fund2002-03Rs 22,897.540 Sindh GP Investment Fund2007-08Rs 6,410.990 Sindh Social Relief Investment Fund2005-06Rs 10,945.500 Sindh Viability Gap Investment Fund2008-09Rs 3,069.819 SASO Pensioners Fund2008-09Rs 127.420 Sindh Bank Fund2008-09Rs 2,000.000 Peoples’ Housing Cell Investment Fund2008-09Rs 1,769.105 Provincial Disaster Cell Fund2008-09Rs 100. 000 Total Rs. 47,320.374 Source: Government of Sindh Finance Department. October 2008 and February 2009.

8. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 8 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

9. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 9 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

10. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 10 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 House Board 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 appoints Board members with substantial investment experience Independent Auditor 1 chairman, 5 members with substantial investment experience

11. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 11 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

12. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 12 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

13. TA-4922 (PAK): Sindh Growth and Rural Revitalization Program 13 Creation of SFMH  Passage of the SFMH Act  Appointments of the chairman and Board members  Board members would establish the Investment Unit