Taiwan’s LPF issues first equity mandates of 2012

Taiwan’s Labour Pension Fund (LPF) is inviting locally incorporated asset managers to bid for its first batch of domestic equity mandates this year totalling NT$30 billion ($1 billion).

The mandates will be shared among six managers, four of which will be picked to run a combined NT$20 billion under Taiwan’s new pension fund system and two to run NT$10 billion under the old system.

The management fee payable to the selected managers is 0.07%, which could go up to 0.1% if the manager beats its benchmark.

Valid for four years, these mandates target relative return over the benchmark Taiwan Stock Exchange Corporation (TSEC) weighted index. The highest level of cumulative tracking error the LPF will allow is 3% on an annualised basis.

In accordance with the guidelines, selected managers must allocate at least 70% of the portfolio to domestic stocks, while portfolio construction should take no longer than seven working days.

Each trustee can invest no more than 10% of a mandate’s AUM in a single stock (5% in the over-the-counter market), and 5% in a bond issued by a financial institution or corporation.

Trading in stock index futures is permitted, and short-hedged trades cannot exceed the cash position of total stock holdings for that day.

Up to 50% of securities in the portfolio can be lent for no longer than six months, which can be rolled over once. Asset managers can keep 10% of fees for securities lending.

Eligible applicants must have had an operating history of over three years by the end of 2011 with total AUM above NT$10 billion.

Any equity, index or balanced fund submitted in an application needs to have had an AUM consistently above NT$ 1 billion for the past three years, a tracking error no higher than 12% and an accumulated return above the median according to rankings of the Securities Investment Trust and Consulting Association.

Applicants should also demonstrate accumulated returns on mandates that have consistently beaten their benchmarks or the TSEC weighted index over the past three years.

The LPF will not consider asset managers if they have had mandates terminated due to poor performance between May 18 last year – when its last domestic equity mandate commenced – and January 30 this year.

The application period for these mandates ends on February 20 and LPF has said it will have finished reviews by March 27.