Taiwan’s $18 billion Public Service Pension Fund has posted requests for proposal (RFP) for two global equity mandates based on smart-beta strategies amounting to $1 billion.
This is the first time that PSPF, the NT$548 billion superannuation scheme managing the pension money of 620,000 civil servants and military personnel, has issued an RFP for smart-beta strategies. Taiwan’s Labour Pension Fund, for instance, has already embraced smart beta.
PSPF posted the requests for proposal on its website this week. One is for global minimum volatility indexed equity (ex-Taiwan), the other for global high-dividend yield-enhanced equity (ex-Taiwan).
The two $500 million mandates are each for a four-year term. The PSPF will allow for a maximum of two asset managers for each strategy, splitting the mandate equally.
A PSPF spokeswoman confirms the fund has received a lot of inquiries, “all from global asset managers”.
However, she notes that one of the conditions for selection is that the asset manager must have at least three client management officers employed and based onshore in Taiwan. While not having this does not exclude firms from applying at the start, to progress they will need to comply.
“Some foreign firms that have enquired about submitting for the two mandates may have their investment team cooperating with their Taiwanese partners, but their main operating entities are still offshore and they do not have a branch or presence in Taiwan,” the spokeswoman states.
While traditional market-cap-weighted indices have faced widespread criticism, accused of misrepresenting global economic realities, managers such as Axa Rosenberg and Lyxor have been touting their smart-beta strategies, which some classify as active rather than passive.
These firms are seeking to redefine beta – or market return – by addressing the shortcomings of passively tracking market-cap indices.
“These firms [Axa and Lyxor] are naturally interested in the RFP process,” says the spokeswoman when asked if they had enquired about the RFP process. Neither of these firms was available for comment at press time.
However, PSPF says it sees these two mandates as passive investment. The spokeswoman adds that the fund is keen on venturing into smart beta as a way to seek returns in a low-risk manner.
According to the application details, PSPF has set a tracking-error range for its global minimum volatility indexed equity (ex-Taiwan) at not more than 0.7%; and a higher ceiling of a 3% tracking-error for its global high-dividend yield-enhanced equity (ex-Taiwan).
Pending assessment of investment performance, risk management and compliance of the winning asset manager, PSPF will consider doubling the size of the mandate to that manager one year after the manager has completed its asset allocation for the first round.
Although these are equity mandates, the scope of investment permitted is wide. It allows not only stocks listed on securities exchanges, stocks traded in the over-the-counter market, exchange traded funds, and also derivative financial products for hedging and investment purposes, repo and reverse-repo of government bonds and short-term bills, and others.