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The first social security mandates likely to be awarded are from TaiwanÆs NT$43.9 billion (US$1.33 billion) Labour Insurance Fund, which is run by the BLI to provide health, unemployment and other insurance benefits to workers. It is seeking investment managers for $150 million in US, $100 million European, $65 million Japan and $150 million global emerging market (ex-mainland China) equities. It will also award a pair of mandates totalling $400 million in global, passive fixed income.
The BLI wants annual investment total returns of 250 basis points above each of these benchmarks and a tracking error of more than 6%. Once the mandates are awarded the Bureau will measure portfolio risk on a quarterly basis. The performance benchmarks for US, European and Emerging Market (ex-PRC) assets are FTSE local currency equity indices. The fixed-interest benchmark is the Lehman Brothers Global Treasury Index, denominated in US dollars, while for the Japan mandate it is split 60/40 between the FTSE AW Japan and FTSE AW Japan Small Cap indices.
Submissions have only been accepted from asset managers with a track record of at least three years (by September 2006) in each asset class and which run global institutional assets of more than $5 billion. As part of the tender process, suitors have been asked to show evidence of their performance in similar institutional-only mandates elsewhere. The application deadline for BLI is 14 March.
This will be the BLIÆs second international investment mandate. In 2005 it mandated AllianceBernstein and Pimco for fixed income and AllianceBernstein and Wellington for equities.
Next off the block will probably be mandates from the NT$240 billion (US$7.27 billion) Public Service Pension Fund (PSPF), which is responsible for civil servantsÆ pensions and pioneered overseas investment among TaiwanÆs social security funds in November 2002. It has now set up an open tender process for five mandates worth $1.3 billion. This includes three $300 million global equity and two $200 million enhanced international fixed-income (ex-US Treasuries) portfolios.
The outsourcing doubles that of previous efforts. In 2002 and last year the fund gathered $500 million and $600 million in assets across global balanced and passive global equities. Citigroup is the incumbent custodian for these mandates. Its previous batch of overseas managers include Allianz Global Investors, Franklin Templeton and State Street Global Advisors (for absolute-return global balanced), as well as Barclays Global Investors, JPMorgan Asset Management and UBS Global Asset Management for older mandates.
The benchmark for the international equity portfolios now subject to tender for PSPF is 50 basis points in excess of the MSCI World Index for Developed Countries; the fixed-income benchmark is the Lehman Brothers Global Aggregate Bond Index.
Lastly, the Labour Pension Fund is said to be looking to award four global balanced mandates each worth $200 million, with a target return in excess of the local two-year deposit rate. This $12.3 billion fund is managed by the Council for Labour Affairs, the agency of the Executive Yuan responsible for labour issues, and it provides a social-security benefit for workers at large companies. It is an old, defined-benefit scheme.
The Council has also assumed responsibility for a new defined-contribution scheme that was established in 2005 and is referred to as the Retirement Pension Fund. This scheme is portable and covers more workers, and has been accumulating employeesÆ contributions of 6% of monthly salary. The Council has issued over $1 billion worth of mandates for the Retirement Pension Fund but only for New Taiwan dollar-denominated assets. It is expected to become an important source of international mandates. But in this case, it is the CouncilÆs older fund, the Labour Pension Fund, now making a search, according to industry sources.
None of these three organisations are using investment consultants, and have always sought a do-it-yourself approach. These tenders are said by fund managers to look at investment performance and fees before being submitted to evaluation boards, at which point the finer elements of choosing a fund manager may come into play.
The one major institution sitting on the sidelines is the NT$3.6 trillion Chungwa Post which, although it outsourced $500 million back in 2005, has yet to make any further move offshore. Fund management executives expect it will look to increase its offshore exposure by anything between $1 billion and $10 billion in due course.
The AU$85 billion ($61.6 billion) Australian super fund has some exposure to indebted property developer Evergrande. Meanwhile, China’s construction finance is part of its core strategy in real estate.
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