Chunghwa Post, Taiwan's postal savings and insurance institution with NT$3.6 trillion ($113.2 billion) of assets under management, plans to choose five external fund management companies to outsource a total of $500 million in global investment mandates, says Yen Yung-an, director of capital operations.
The organization has just appointed Citibank as its first global custodian; until now, offshore investments were handled through trustee accounts with Chinatrust Commercial Bank and the Central Trust of China.
The organization is now finalizing its manager selection. Some fund management executives say the decision has already been made but not announced. Chunghwa Post will tap five managers, two for global equities and three for global fixed income. The post office has shortlisted 15 global fund houses and ranked them.
This marks the first time that Chunghwa Post has mandated fund managers for offshore investments and is an escalation of its recent push into international diversification. Until recently, its offshore exposure was negligible, but last year saw a big change, with the organization investing NT$93 billion ($2.9 billion) in international fixed income, mostly in US dollar-denominated government, corporate and mortgage-backed bonds, but also with exposures to sterling, Australian dollars and euros. It also bought some international equity mutual funds but quickly sold out to take profits. All of these investments were done in-house.
Yen says the need to bolster returns and diversify risk means the postal group intends to increase its international exposure, perhaps doubling its offshore assets over the course of 2005. The asset size is too big to be limited to the domestic capital markets. Yen notes that Chunghwa Post now owns one-seventh of Taiwan's entire bond market. Nonetheless the organization is hungry for exposure to different types of fixed income in order to reduce its total portfolio risk.
It is building its offshore investment and outsourcing teams, which now total six people but may grow to 14 this year.
Rita Huang runs the research and development section of capital operations, which is charged with outsourcing. She says the shortlisted managers have a minimum of $25 billion of assets under management, have been established for at least three years, have a Taipei-based service team, follow AIMR investment standards, and have outperformed the relevant benchmarks for the past two years.
Those benchmarks are the JPMorgan Global Government Bond Index or the Citigroup World Government Bond Index for fixed income, and the MSCI World Index or FTSE Developed Country Index for equities.
These mandates will be for three years, and if Chunghwa Post is satisfied with the performance, may be extended another three years with larger mandates.
Yen says a key goal of these mandates is to train Chunghwa Post staff at the fund managers' head offices, in order to learn how to manage offshore assets. Chunghwa Post did not use an investment consultant, but it did rely on help from the Public Service Pension Fund, another Taiwanese government institution with more experience.
The post office manages assets in two accounts, one for savings and another for insurance. About 74% of the combined assets are in deposit at the central bank and local banks, with fixed income instruments accounting for 12% and domestic equities another 4%. At present, it does not invest in structured products, but it is studying NT$-denominated products such as CDOs and Reits. It may be interested in non-NT$ structured products but this will take a while to research.