The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Buoyed by its success, Labour Pension Fund vice general director Lee Su-zhu, says its investment committee is looking to outsource two more batches of mandates to external asset managers in the second half of this year. This will be in addition the $1.5 billion outsourced in May. Templeton, AllianceBernstein, Newton and Goldman Sachs Asset Management were the winners of the previous round of bidding.
Lee says the fund is trying to grapple with the potential impact of rising inflation û which it sees as its main priority and the biggest challenge to its long-term objectives û and the continued uncertainties in global economic and financial outlooks.
According to the latest estimates from the Executive Yuan (TaiwanÆs executive branch of government), inflation rose 3.88% in the first half of this year. The country has also recorded a sharp increase in wholesale prices, which jumped by 8.36% over the same period. The Executive Yuan forecasts inflation for the whole year to grow by 3.29%; while wholesale prices are expected to rise 5.93%.
Lee says the fund needs external help to reposition its asset allocation for the longer term. At present, 40% of the fundÆs assets are allocated to equities while the rest is allocated to international and domestic fixed income products. The outlook for global fixed income isnÆt favourable, she notes, as most central banks are still tightening monetary policy to combat inflation. She believes the continued inflationary pressure across the region will be a drag to its bond portfolio and that negative real returns are increasingly a possibility.
The fund is finding ways to diversify its allocations within fixed income, Lee says. It is considering moving away from a fixed-rate-focused allocation to a higher exposure in floating-rate products. The committee is also mulling the idea of adopting guaranteed notes or Treasury Inflation-Protected Securities-related products for the longer term.
Meanwhile, Lee says the fund is looking to bolster its internal asset modelling system. The fund is introducing a new state-of-the-art asset management system next year, she says, that will ease some of the asset allocation decision-making pressure from the investment team and help it put capital into more flexible use.
The fund had a total asset size of $15.32 billion under its defined-benefit old system prior to reforms implemented in 2005. Since the implementation of the new system, it has accumulated $8.9 billion in new assets.
As of July 22, the fundÆs outsourced investments were valued at $3.98 billion, of which $1.72 billion was sourced from its previous defined benefit system and its new system of defined contributions.
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