PSPF seeks domestic managers for $854 million

Weary of recent corruption charges, the civil servantsÆ pension fund is capping the maximum number of accounts that managers can get from the fund.

Having freshly emerged from corruption charges, Taiwan's Public Service Pension Fund (PSPF) has its hands full. The fund is intent on showing the world it will follow proper procedures, for fear of tripping over more live wires that will set the island's prosecutors off on another round of allegations. As previously reported by AsianInvestor, Chu Wu Hsien, a former chairman of the management board of the PSPF and minister of civil service between 2004 and 2008, was detained by prosecutors in Taiwan last month on suspicion of wrongdoing in office.

Just last week, PSFP finished meeting all 27 investment managers who have made it to its rather long short-list for four active global equities mandates, each of which is sized at $250 million. The investment committee is in the final stage of evaluating bids. Results are expected to be announced shortly.

Yesterday, it announced that it wishes to increase its domestic allocations by another NT$280 billion or $854 million. The PSPF is seeking bids from investment managers for seven Taiwan equities mandates.

Assuming senior managers who have just spent the past two weeks entertaining the PSPF in its rounds of global equities mandates, and the weeks before perfecting their RFP (request for proposal) responses, have not yet left for summer vacation, interested bidders are welcome to submit their proposals by Monday, August 24. (Coincidentally, headhunters report an increase in fund house hirings for RFP specialists over this summer.)

However, managers who already have experienced success in scoring PSPF mandates in the past need not worry. The PSPF is weary of allocating more funds to existing managers on its roster. It highlights managers will receive a maximum of two active mandates from the fund, past and present, from now on. The appointed manager should be running no more than a total of three active mandates from other institutions, at a maximum ceiling of NT$20 billion ($610 million).

Managers intending to bid in the current round still need to demonstrate scale -- they need to be big, just not too big in Taiwan. The PSPF will not consider submissions from fund houses with total AUM of less than NT$10 billion, that does not have at least one equity fund with average AUM of NT$1.5 billion over the three years and one segregated account with asset size at NT$3 billion.

A source comments the new condition may reflect new concern within the PSPF for capacity issues within the fund firms -- that investment managers at the PSPF find fund firms that fit within the boundaries will deliver optimal performance.

The clauses are only a PSPF oddity for now, but are nonetheless raising eyebrows among institutional salespeople that still have big ambitions for scoring more institutional business in the usually retail-dominated Taiwan fund business. But so much for talks of achieving economy of scale in the outsourcing assets.

The fund has set its performance target for its current round of mandates to the domestic two-year benchmark deposit rate plus 700 basis points. As of August 11, the current rate is at 0.845%. The PSPF appears to have set no benchmark constraint for the mandates.

The mandates will be good for three years. Managers will be allowed to allocate assets between listed over-the-counter equities, exchange-traded funds, initial public offerings, privately placed equities, government debt, fixed-income instruments (no subordinated debt), corporate bonds, securitised products, equities futures for the purpose of hedging and interest rates derivatives.

Managers are allowed to allocate cash positions into government treasuries, money market instruments and bank deposits.

Fees are calculated on an annual basis. There will be a 0.05% trail fee for managers who underperform the Taiwan Taiex Index over the year, or 0.1% for managers who manage to just meet the Taiex or outperform it; plus a performance fee that range between -0.02% and 0.15%.

¬ Haymarket Media Limited. All rights reserved.