Taiwan’s Bureau of Labor Funds (BLF) kicked off a mooted plan to expand its externally managed alternative asset positions and replace some underwhelming existing managers on Monday (October 26), when it invited fund managers to pitch for multiple positions on two separate five-year overseas pools of assets worth a combined $3.94 billion.

The first is a $1.64 billion global infrastructure securities mandate, which the state pension fund wants to assign four managers to operate. Each one is set to be provided $350 million to oversee on behalf of the BLF's Labor Pension Fund, according to a statement. It is also looking to appoint four fund managers to manage $60 million apiece for its Labor Retirement Fund. BLF did not specify whether the four managers for the two funds can be the same or not. It manages a total of six retirement funds.

The second mandate is for a $2.3 billion fund that focuses on global multi-assets. An estimated $2 billion under the Labor Pension Fund will be split equally among five selected managers. The remaining $300 million will be also be equally shared by five managers for the National Pension Insurance Fund, which BLF manages on behalf of the Ministry of Health and Welfare department.

Both mandates will adopt an active strategy. 

AsianInvestor broke the news in June that the NT$4.46 trillion ($156 billion) fund was planning to create two investment mandates. At that time, deputy director general Liu Li-ju said that if the coronavirus outbreak came under control, BLF planned to invite bids for the two mandates by year-end and issue them early next year.

In its request for pitch document, BLF said that one investment manager may apply for both of the new mandates at the same time, but it stipulated that the amount awarded to each manager cannot exceed 40% of the total external mandate amount of its six retirement funds under management. The pension fund also said that external asset managers pitching for the business should also be prepared to manage the funds in each mandate within segregated portfolios.

Liu Li-ju

BLF is issuing the mandates because it wants to raise its allocation to alternative assets. Alternatives now make up 11% of its NT2.4 trillion Labor Pension Fund, the biggest fund among the six funds under BLF’s management. However, the target allocation should be 13%, according to Liu.

“Our alternatives are under-allocated. So we’ll issue alternative mandates by the end of this year,” Liu had previously told AsianInvestor.

In addition, the pension fund is looking to replace some previously appointed infrastructure and multi-asset fund managers whose external asset performance had not met expectations. Liu had told AsianInvestor that the pension fund had been planning to replace them as their mandates will expire soon.

“Some of them are very good, but some are really quite nerve-racking. Therefore after five years, not everyone will stay…so we have to find new ones,” she had said.

REQUIRED QUALIFICATIONS

Candidates applying for the respective mandates must demonstrate their past performance in managing the relevant investment products. They need to state the cumulative gross rate of return of the proposed product for the past three years for both mandates, according to the statement.

For the global infrastructure mandate, the proposed portfolio shall be benchmarked to one of the following indices: FTSE Global Core Infrastructure 50/50 Index, FTSE Developed Core Infrastructure 50/50 Index, Dow Jones Brookfield Global Infrastructure Index, S&P Global Infrastructure Index, MSCI Acwi Core Infrastructure Index, or MSCI World Core Infrastructure Index, T-Bill Index, Libor Index, among others.

Meanwhile the multi-asset mandate product will be a multi-asset strategy, so BLF said applying fund managers should not use simulated performance data. Instead, it said the composite index might be a combination of an equity benchmark index, a bond benchmark index and a benchmark index of other asset classes.

Asset managers will need to pass a pre-qualification examination before the Taiwanese pension fund assesses their proposals. BLF said that it will notify qualified applicants to begin management fee negotiations according to their respective rankings in terms of the strength of their proposals. If the applicant’s fee quote is lower than or equal to the floor price set by BLF, the manager will qualify to sign the contract.

All fund manager applicants must be established for more than three years and have at least $5 billion of assets under management by September 30. They will have to submit their applications on or before November 30.

BLF only just finished assigning a $2.3 billion corporate bond mandate focused on sustainable investing on October 20. It appointed DWS Investment Americas, Insight Investment Management, JP Morgan Asset Management, Pimco and Western Asset Management to each oversee $460 million in funds.

All-told, $400 million is being managed by each fund house for the Labor Pension Fund, while $60 million will be maanged on behalf of the National Pension Insurance Fund.