Taiwan's Bureau of Labor Funds should have no limit on its foreign portfolio allocation and needs more investment professionals to cope with its expanding assets under management, suggests its former director general.
AsianInvestor spoke to Huang Chao-hsi in an exclusive interview last week about his plans for retirement and changes he would like to see at the $106 billion state pension manager.
Having worked at BLF for a decade, Huang left the fund on Friday, January 13, and received an AsianInvestor's award for his individual contribution to institutional investment last year. New director general Tsay Feng-Ching took the helm on January 16.
Huang has already overseen major shifts into alternative and overseas assets, and international fund managers will be happy to hear he is arguing for this trend to continue.
Raising offshore limits?
The Labor Pension Fund (new scheme), the largest single fund under BLF, has no offshore investment limit, but the other three big funds – the LPF (old scheme), Labor Insurance Fund and National Pension Insurance Fund – can only invest up to 50% of their AUM offshore.
These limits should be removed, said Huang, because overseas markets will have lower volatility and higher returns in the long run.
The government’s concern is that an overly high proportion of capital will go into foreign assets if the limit is removed, but that is not very likely to happen, he noted. The government retains ultimate control over BLF’s investments, he added, as the yearly investment plan is reviewed by the Ministry of Labor, the Executive Yuan and the Legislative Yuan.
What’s more, Huang said, the LPF new scheme only has 52% of its portfolio in foreign investments.
Need for talent
Meanwhile, he recommended that BLF's employee benefits should be improved to attract more talent. The fund's assets have grown by nearly 40% in the past three years and gone into new types of investments such as alternatives. This means it needs more expertise and thus a larger budget from the government to attract such staff, Huang said.
BLF aims to increase its alternatives allocation to 12% by the end of this year from 10% as of end-2016, he noted. This includes private equity, hedge funds, commodities, real estate investment trusts, direct real estate and infrastructure. Where the new allocation will go will depend on specific opportunities, he said.
Huang, 65, said he stepped after 10 years at the fund as he wanted to take a break. Some financial institutions have asked him to consult for them, he added, but he doesn’t plan to take a new job right away.
In the meantime, he will carry out voluntary social work under an employment assistance programme run by the Ministry of Labor’s Workforce Development Agency. He also plans to spend more time with his wife, who lives and works in the city of Taichung, on the country's west coast. He said he was looking forward to cooking dinner for her.
Moreover, Huang said he felt comfortable leaving BLF because its basic mechanisms had been well established and tested. He highlighted four aspects in particular.
With regard to its management and process systems, BLF is a small but efficient organisation, Huang said. It only has about 70 investment professionals, but the management is flat, which has helped accelerate process efficiency, he noted.
Secondly, the institution's portfolio construction and risk control systems are well established. BLF makes its asset allocation and budget plan every year in April for the next year, submits the budget for review by the Ministry of Labor and the Executive Yuan, and finally gets approval from the Legislative Yuan in the fourth quarter. In case of any major changes in global financial markets, there is a window in October when the budget plan can be amended.
BLF's investment strategy team comprises financial experts and academics in Taiwan. The fund regularly consults with its investment consultancy, Willis Towers Watson, and the asset managers that run its outsourced portfolios, to understand market conditions and seek advice.
Thirdly, Huang pointed to the establishment of BLF's multi-asset portfolio. Since it was set up in April 2014, it has invested across bonds, stocks, indices, smart-beta strategies and alternatives.
Lastly, Huang said the unity and cohesion of the institution's team helped it to meet its investment targets and achieve the other objectives of every year’s plan.
The respect Huang has for his staff is clearly mutual. They threw a touching farewell party for him on January 13, where they showed a video they had made as a tribute to his services and invited his wife and son as surprise guests. AsianInvestor understands that some employees cried at the event, in a touching tribute.