Taiwan pension fund seeks equities managers

The four state pension funds will release $1.5 billion to managers this year.
Taiwan’s four state pension funds are at last issuing requests for proposals to private fund managers for the domestic equity portions of their asset allocations. The Civil Servants Pension Fund, which is estimated to have $7 billion of assets under management, has just issued RFPs for mandates totalling NT$15 billion ($450 million). It intends to appoint managers by 1 July.

The other three – Labour Insurance Bureau, Labour Pension Fund and the Postal Savings System – are expected to follow suit over the next few months. For example, Fred Huang, deputy director-general at Labour Insurance Bureau, says his organization will release NT$10 billion to four-to-six domestic equities managers this year.

David Lee, chairman of ABN AMRO Asset Management in Taiwan, estimates the four will release around NT$50 billion ($1.5 billion) this year to fund managers.

All the mandates are expected to be for domestic equity allocations. These funds have been managed very conservatively. Until recently they invested mainly in time deposits and government bonds. Recently, urged on the by government panicking over the weakness of the Taiwan Stock Exchange, these funds have been encouraged to increase their exposure to equities.

As a result, the government, after many years of hemming and hawing, last year passed legislation allowing for discretionary fund management. To date pension funds have invested directly in domestic mutual funds but only now are they capable of mandating money to private-sector professionals. Sources involved in the funds’ investment committees note that performance is a secondary consideration, as these funds only have to beat government-stipulated guaranteed returns, which they do most years.

In addition, the Civil Service fund has also received permission from the Central Bank of China to invest up to NT$50 million offshore, according to an official involved in the fund’s investment committee. Until now, offshore investing has been strictly prohibited by the central bank, which fears weakening the currency, and generally by the government, which abhors capital outflows. The central bank approved this trial allocation on the grounds that it be swapped back into New Taiwan dollars.

Only fund managers with a local operation and track record will receive RFPs. Fees are expected to be very low; David Lee predicts they will fall somewhere below 1.5% all-in for managers.

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