An official at Taiwan’s Labor Pension Fund (LPF) has revealed that its long-planned merger with the Bureau of Labor Insurance (BLI) may not be realised until the second half of next year.
But Ed Su, director of LPF’s investment management division, points out that once the integration is complete, the size of the combined entity’s mandates will be far larger and they will be issued more frequently.
“The investment teams of LPF and BLI were expected to merge in January next year, but the approval process at the legislative Yuan is taking longer than anticipated,” Su tells AsianInvestor.
The point of combining the two pension funds’ investment teams is to improve efficiency and long-term performance, at once achieving greater flexibility for price negotiation and consolidating their separate relationships with external managers.
BLI has an investments team of about 50, while LPF has around 70. Once united, the new team will operate under the Labor Fund Utilisation Bureau and be overseen by Taiwan’s labour ministry.
Su confirms that no job cuts are planned and that the merger will swallow the two teams whole, although some responsibilities will change since they will be reorganised and divided into domestic and overseas sub-groups according to experience and capabilities.
However, he adds that both funds’ assets will be managed separately in accordance with their different risk-return profiles, and that existing mandates will remain as they are until expiration.
“In future, the size of the mandates will be larger and we will issue mandates more frequently,” he notes. “The reorganised investment team is expected to focus on more asset classes.”
Alvina Liu, LPF’s vice-chairperson, expects the combined fund to attract new assets of NT$180 billion ($5.9 billion) per year.
“Mandates for overseas investments will definitely increase further, and investment strategies will become more abundant,” she says, speaking during a sub-advisory roundtable (see the December issue of AsianInvestor magazine).
But Su suggests it’s still too early to talk about likely changes that may occur in terms of target returns and asset allocation.
While he acknowledges that the combined fund’s size will increase its bargaining power in terms of negotiating fees with external managers, he notes too that the mandates will be bigger and so it may not translate into less revenue for them.
As at the end of September, LPF managed around $43 billion in assets under management, including $18.9 billion for the Labor Retirement Fund (the old fund) and $24 billion for the Labor Pension Fund (the new fund).
BLI’s Labor Insurance Fund, meanwhile, manages just over $14 billion in total assets.