Following the double whammy of the 2008 financial crisis and the government-mandated introduction of annuities at the beginning of 2009, the Bureau of Labour Insurance in Taiwan says it is resetting its policies on how to manage its investments.
The introduction of annuities will be a relief to Taiwanese people who have been challenged by inflation and low economic growth in recent years. But it has worsened the existing funding gaps and cashflow problems stemming from rapid ageing and lowering contributions that had already plagued the BLI's supervision committee. Indeed, before the annuities bill was enacted in 2008, some academics had warned it could send the BLI into premature insolvency.
The BLI's supervision committee says it is sticking to five key principles. First of all, it says it will seek reasonable returns at low to medium risk. Second, its investments are intended to sustain the bureau's activities after meeting all funding gaps. It will also aim to strengthen its reserves position and seek to relieve pressure on the portfolios' adjusted actuarial positions.
The next five years will be particularly significant to the BLI as the wave of retiring post-war baby boomers hits its peak. The BLI expects its cash expenses to hit an all-time high as these people cash out their retirement payment as promised by the Taiwanese government. The BLI is trying hard to strike a balance between maintaining a medium- to long-term investment timeframe and still be able to manage short-term liquidity constraints and market volatility.
Its self-managed portfolios will be gradually converted to passive management. The main focus for outsourced investments, meanwhile, will be active management strategies. It will assess and review investment performance for both its self-managed and outsourced portfolios on five-year return horizons.
The bureau has not elaborated on how its investment committee will go about setting investment policy, but it says it will apply criteria that include expected income and expense positions, economic forecasts, interest rate movements in financial markets, business outlook and advice from "specialists" or "academics". Implementation will still be subject to the government's vetting and approval.
A ceiling for overseas investments, including fixed-income instruments, equities or alternative investments, will be capped at 35% or subject to revisions in the guidelines for BLI's investment management. Allocation to equities will be set at 45% (+/- 10%) of total assets, while allocation to cash or cash equivalents will be gradually lowered, while maintaining sufficient liquidity.
The BLI is also trying hard to do its bit to be socially responsible. Investments allocated to securities issued by socially responsible corporations will be increased by 50% per year. (It has yet to review how many securities in its various investment portfolios are actually meeting the SRI guidelines published by the Taiwan Stock Exchange last year.) The BLI is not ready to be a radical activist yet, but it will abstain from or choose not to increase investments in companies that are on a path of severe departure from meeting those guidelines.
Its performance targets will be benchmarked to appropriate indices or references. Domestic fixed income will be indexed against the five-year Taiwan government bond rate; overseas fixed income against the Barclays Capital Global Aggregate Bond Index; cash equivalent against the 30-day CP2 in Taiwan; domestic equities against Taiex; overseas equities against the MSCI All Country World Index; and alternative investments against one-year Libor +3%.
There will be no benchmark set for lending or for property investments.
NAVs of its domestic outsourced portfolios are to be published each day, while details on asset allocation to different asset classes (including domestic equities) and investment performance of outsourced mandates will be made available monthly and quarterly.
At the same time, the bureau says it will also publish the investment performance statistics of its self-managed investment portfolios, the names of its top 10 stock holdings and its net allocation to these stocks, and its publicly-held debt instruments. Overall investment performance of the BLI funds, NAVs of fund holdings, its annual financial position, operational statistics, top 10 equities and debt holdings will also be made available annually.