Labour Pension Fund to outsource another $2 billion

The Taiwanese fund is outsourcing four mandates in enhanced global equity and another four in enhanced global fixed income.
TaiwanÆs Labour Pension Fund is outsourcing a fresh batch of mandates in global equity and global fixed income. The mandates are worth a total of $2 billion. The æOld SystemÆ and æNew SystemÆ are contributing $1 billion each as financial sponsors to the current round of bidding.

Four mandates in enhanced global equity and another four in enhanced global fixed income are up for grabs this time. The equity mandates are sized at $200 million each. The fixed income mandates, meanwhile, are each worth $300 million.

Managers can choose to benchmark the equity portfolios against the MSCI World or FTSE All Word Index. The Labour Pension Fund is targeting out-performance of at least 100 basis points, net of fees and a tracking error within 3%.

For fixed income portfolios, the fund is targeting a minimum of 50bp return above benchmark, which can either be Lehman Brothers Global Aggregate Bond Index, or Citigroup World Broad Investment Grade Index. Managers have an allowance of up to 150bp in tracking error.

Attention, readers: before you get any further ideas, fund officials say only the very global, very capable and very present in Taiwan need apply.

The Labour Pension Fund has revised some of its terms since it last outsourced $1.5 billion to Goldman Sachs, Templeton, AllianceBerstein and Newton in April. Applicants are required to have no less than $5 billion of assets sourced from institutional clients worldwide. The fund also wants to be serviced properly onshore û managers must have a local operation or service team within Taiwan.

According to Michael Chen, an official at the Labour Pension Fund in Taipei, the current round of mandates are different from the previous $1.5 billion worth of æactiveÆ mandates given to Goldman or Templeton.

Chen says the æenhancedÆ strategies are a diversification to the spectrum of strategies already on the Labour Pension FundÆs portfolio. The new mandates target lower alpha and allow a more inclusive view of price-earning valuations, given the current uncertain outlook for global investments.

A managing director at a leading fund house expressed surprise that, contradictory to previous reports, the Labour Pension Fund is not taking up any new asset class categories or inflation-protected mandates.

Chen says the fund has no further plans for introducing new asset classes or strategies for the second half of the year. But internally, the Labour Pension Fund is looking to test out TIPS-related strategies on its own investment platform soon.

Interested fund managers are invited to read through the fundÆs rules and submit applications, together with evidence of portfolio performance over the past three years in GIPS or AIMR-PPS format, by August 14.

Investment managers should be aware, however, once short-listed, they will be required to sit through a 30-minute examination and Q&A session with the fundÆs supervisory committee.

The managers are expected to give proper, intelligible 100-word answers to questions including:

- ôPlease explain why the fund should appoint your organisation to manage the stated mandate in section A, in preference to your competitors?ö

- ôPlease highlight how you can demonstrate your commitment to the Taiwanese market and will be able to provide a satisfactory level of client servicing if selected by the fund.ö

- and ouch, ôPlease also provide details in relation to any major loss/ write-offs of your organisation over the past year.ö

To date, the fundÆs outsourced investments were valued at $3.98 billion. The current round of bidding will bring that total to $5.98 billion.

The Labour Pension Fund has a total asset size of $15.32 billion under its æOld System', which is a defined-benefit model prior to pension reforms implemented in 2005. Since the implementation of the æNew SystemÆ, its defined contribution model, it has accumulated $8.9 billion in new assets.
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