TaiwanÆs Labour Pension Fund is $2.3 billion in the red
The islandÆs centrally managed retirement fund is facing a double whammy of poor investment returns and rising expenses.
ItÆs not just the US and European pension funds that are feeling the pinch in this global financial crisis. The pain is sweeping through Asia, and TaiwanÆs Labour Pension Fund is the latest to succumb as it records a deficit in its latest accounting report.
At the end of September, the Labour Pension Fund was $2.3 billion in the red. As much as NT$45 billion ($1.37 billion) of that loss has been accumulated under the ænew systemÆ û a pool of centrally managed assets under its reformed defined contribution model û in the first nine months of this year. In September alone, total expenses under the new system exceeded total income by NT$12.71 billion.
Results for the whole year of 2007 show that the fund was running a surplus of NT$713.83 million until expenses began to balloon. The fund reported a modest surplus of NT$568 million in October 2007 and then a deficit of NT$2.33 billion in November 2007.
The æold systemÆ of the fund û a leftover pool of assets that dates back to the defined benefits days before the islandÆs pension system was reformed in 2005 û appears to have fared slightly better. It ran an impeccable surplus record throughout 2007 and only moved into the red this September. The total deficit for this pool of assets is now NT$29.4 billion ($895.89 million).
The Labour Pension Fund guarantees fund participants an annual minimum return of no less than the local two-year benchmark deposit rate. The latest rate as at end-October was 2.3626%. Local experts have repeatedly voiced warnings over a possible bankruptcy of the islandÆs pension model û in which case, the local government will be required to foot the final bill.
Total assets under the old system now amount to NT$475.9 billion ($14.5 billion). A staggering NT$153 billion (or 32.31%) of these assets are held in cash deposits. This year, the overall investment returns stands at -6.47%, representing a net loss of NT$29.48 billion or $898 million.
About 5.4% of the old systemÆs assets are managed by four external overseas managers, including Invesco, UBS Global Asset Management, Fidelity International and Allianz Global Investors. The four houses were each handed $200 million in June last year. To date, all of these investments are running at a loss, with an average return of -12.63%.
A further 14.89% of the funds are managed by 10 domestic managers, including: the Taiwan arms of US Prudential and UK Prudential, HSBC, the local Capital Fund, Fuhwa, Yuanta, ING, Sinopac, Cathay and Fubon. The NT$70.5 billion invested by these managers is now worth just NT$61.59 billion, with the portfolios outsourced in 2002 and September 2006 posting the worst returns of -21.86% and -22.6% respectively. Total returns for the June 2006 and March 2008 portfolios delivered 4.77% and -15.9% respectively.
The fund invests the balance of its assets in the local stock market (11.49%), domestic debt (11.32%), money market instruments (11.18%), securitised products (0.04%) and government lending (1.57%). It also manages a separate portfolio of overseas assets that amounts to 5.38% of the fund.
The new system has a similar cash position as the old pool with 31.61% in NT dollar deposits and another 13.8% in foreign currencies. Of the total asset of NT$316.31 billion, a total of 16.96% is managed locally by domestic managers with another 14.92% in overseas managersÆ hands.
A total of $750 million was split equally between AllianceBerstein, Newton and Templeton for active global equities investments in May this year. These fund houses had each delivered net losses of - 30.99%, -30.21% and -19.53% respectively. Returns by the FTSE All World index over the same period were -24.94%.
On the global bond portfolios outsourced to AllianceBerstein, Goldman Sachs and Templeton over the same period, the fund houses each delivered losses of -6.83%, -4.24% and -6.985 on the portfolios (each with a size of $250 million). The Lehman Brothers Global Aggregate Bond Index (which has since changed hands to BarCap) was down 5.51%.
The fund says its outsourced portfolios have outperformed the market on an overall basis. It acknowledges uncertainties are lingering over the domestic economy against the backdrop of the global financial crisis. It says it will keep its investment focus long-term. However, because of the correlation between the domestic stock market and global equities and currency movements, it will adjust its asset allocations û though it didnÆt say how.
At the end of September, the Labour Pension Fund was $2.3 billion in the red. As much as NT$45 billion ($1.37 billion) of that loss has been accumulated under the ænew systemÆ û a pool of centrally managed assets under its reformed defined contribution model û in the first nine months of this year. In September alone, total expenses under the new system exceeded total income by NT$12.71 billion.
Results for the whole year of 2007 show that the fund was running a surplus of NT$713.83 million until expenses began to balloon. The fund reported a modest surplus of NT$568 million in October 2007 and then a deficit of NT$2.33 billion in November 2007.
The æold systemÆ of the fund û a leftover pool of assets that dates back to the defined benefits days before the islandÆs pension system was reformed in 2005 û appears to have fared slightly better. It ran an impeccable surplus record throughout 2007 and only moved into the red this September. The total deficit for this pool of assets is now NT$29.4 billion ($895.89 million).
The Labour Pension Fund guarantees fund participants an annual minimum return of no less than the local two-year benchmark deposit rate. The latest rate as at end-October was 2.3626%. Local experts have repeatedly voiced warnings over a possible bankruptcy of the islandÆs pension model û in which case, the local government will be required to foot the final bill.
Total assets under the old system now amount to NT$475.9 billion ($14.5 billion). A staggering NT$153 billion (or 32.31%) of these assets are held in cash deposits. This year, the overall investment returns stands at -6.47%, representing a net loss of NT$29.48 billion or $898 million.
About 5.4% of the old systemÆs assets are managed by four external overseas managers, including Invesco, UBS Global Asset Management, Fidelity International and Allianz Global Investors. The four houses were each handed $200 million in June last year. To date, all of these investments are running at a loss, with an average return of -12.63%.
A further 14.89% of the funds are managed by 10 domestic managers, including: the Taiwan arms of US Prudential and UK Prudential, HSBC, the local Capital Fund, Fuhwa, Yuanta, ING, Sinopac, Cathay and Fubon. The NT$70.5 billion invested by these managers is now worth just NT$61.59 billion, with the portfolios outsourced in 2002 and September 2006 posting the worst returns of -21.86% and -22.6% respectively. Total returns for the June 2006 and March 2008 portfolios delivered 4.77% and -15.9% respectively.
The fund invests the balance of its assets in the local stock market (11.49%), domestic debt (11.32%), money market instruments (11.18%), securitised products (0.04%) and government lending (1.57%). It also manages a separate portfolio of overseas assets that amounts to 5.38% of the fund.
The new system has a similar cash position as the old pool with 31.61% in NT dollar deposits and another 13.8% in foreign currencies. Of the total asset of NT$316.31 billion, a total of 16.96% is managed locally by domestic managers with another 14.92% in overseas managersÆ hands.
A total of $750 million was split equally between AllianceBerstein, Newton and Templeton for active global equities investments in May this year. These fund houses had each delivered net losses of - 30.99%, -30.21% and -19.53% respectively. Returns by the FTSE All World index over the same period were -24.94%.
On the global bond portfolios outsourced to AllianceBerstein, Goldman Sachs and Templeton over the same period, the fund houses each delivered losses of -6.83%, -4.24% and -6.985 on the portfolios (each with a size of $250 million). The Lehman Brothers Global Aggregate Bond Index (which has since changed hands to BarCap) was down 5.51%.
The fund says its outsourced portfolios have outperformed the market on an overall basis. It acknowledges uncertainties are lingering over the domestic economy against the backdrop of the global financial crisis. It says it will keep its investment focus long-term. However, because of the correlation between the domestic stock market and global equities and currency movements, it will adjust its asset allocations û though it didnÆt say how.
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