PSPF mandates three for $600 million

The Taiwanese pension fund hires Allianz, Franklin Templeton and SSgA for absolute-return mandates.
TaiwanÆs Public Service Pension Fund, the NT$326 billion ($9.9 billion) pensions organisation for TaiwanÆs civil servants, has awarded three $200 million mandates to Allianz Global Investors, Franklin Templeton and State Street Global Advisors.

Sources in Taipei report that the mandates are all labelled global balanced but in fact are absolute-return mandates, a first for a Taiwanese public fund.

The Bureau of Labour Insurance had attempted to issue absolute-return mandates last year but cancelled the programme when it realised it would struggle with its refusal to countenance the use of derivatives.

The PSPF also does not allow the use of derivates, except to hedge. This can be a nebulous rule. The PSPF will require managers report their daily positions and the market value of hedges cannot exceed that of the underlying assets. It is not clear how much leeway this gives managers; nor is it clear what kind of promises the managers made. But none of these mandates are principal-protected or guaranteed, so the PSPF is still assuming the risk.

The benchmark is to add 500 basis points to the two-year Bank of Taiwan deposit rate, hedged back to New Taiwan dollars.

The PSPFÆs executive board has allowed for a broader set of asset classes, however, that should help managers achieve higher returns. This includes mortgage-backed securities, for example, but not structured products such as CDOs.

Fees were not disclosed other than they are below market rates.

The PSPFÆs executive committee has also reportedly urged the fund to invest abroad more aggressively, both with its in-house teams and with its outsourcing to foreign fund managers. Before this latest mandate, the PSPF outsourced NT$21 billion ($639 million) to global fund houses and manages another NT$62 billion of offshore assets by itself. PSPF officials have yet to detail strategy for next year, although sources say it is considering global fixed-income mandates for its next round.

This latest mandate, which will be funded on September 12, nearly doubles the fundÆs existing outsourcing programme for overseas investments. It is the first such set of mandates since December, 2003, when it gave $100 million mandates to Allianz as well as JPMorgan Asset Management and UBS Global Asset Management for global balanced; and to SSgA and Barclays Global Investors for global enhanced equity.
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