Taiwan's Labour Pension Fund (LPF) is announcing a new RFP for an investment consultant. The news has come as a surprise to industry execs serving Taiwan's institutional market. That's largely because Mercer, traditionally strong in relations with government-affiliated associations in the region, completed a comprehensive long-term asset-allocation plan for the LPF in March last year.

It took Mercer eight months to labour over that piece of research. However, the unfortunate timing of the recommendation -- put together in the trough of the crisis -- means the assumption of asset class behaviour and asset growth used in the actuarial calculation for assets and liabilities have since changed at the LPF.

Mercer's plan is getting binned before it has even started to be taken seriously by LPF officials, say industry executives. And now the fund is restarting the entire process and looking to obtain a second opinion -- from a new consultant -- on how it should invest its $30.19 billion.

The LPF is now Taiwan's most venerable pension-fund investor. It had a testing time during the financial crisis, along with the country's other pension funds. However, unlike the others, it hasn't experienced a drop in its asset size.

Thanks to continued new contributions, as stipulated by law from Taiwan's pension reforms implemented in July 2005, the asset pool at the LPF's 'New System' (its defined-contribution body) is rising swiftly. It has gone from NT$127.8 billion ($4 billion) in 2006 to NT$234.7 billion in 2007, NT$340.3 billion in 2008 and NT$472.4 billion in 2009. The New System reported an investment return of 11.84% last year.

Its now-closed defined-benefit 'Old System', meanwhile, also recorded gains. Asset size has been rising gradually from NT$420.1 billion in 2006 to NT$459 billion in 2007, NT$471.6 billion in 2008 and NT$496.8 billion as at the end of 2009. Returns were up 13.40% last year.

According to Lee Ruey-ji, vice chairwoman of the LPF's supervisory committee in Taipei, the fund is taking the view that the global economy is already out of recession and that the world is entering a phase where economic expansion will be driven by loose monetary policies. The fund believes the recovery is still at its early stage and that the expansionary trajectory is subject to multiple variables.

The LPF is also taking a more active stance in managing its outsourced investments. In a bid to strengthen performance, Lee says managers that underperform relative to their peers will be banned from entering future mandate bids.

Contrary to the approach of many Asian investors now eyeing the possibility of interest-rate tightening with caution, the LPF is continuing to build on its allocation to fixed income. In particular, instead of doing this by selling risk assets, Lee says the LPF is bolstering its fixed-income allocation by shifting its unused cash position. The LPF also quietly funded four Asia-Pacific equity mandates in November (see table below).

The LPF has yet to publish detailed results for its full-year performance in 2009. According to its last published report, as of the end of November, the Old System had a startlingly large cash position of 42.27%, 5% of which is held in local commercial paper.

The Old System has an 11.29% allocation to domestic fixed income and securitised assets, 0.9% in loans to government and public institutions, 9.55% in domestic equities and 4.14% in overseas investments, which it manages internally. The fund outsources 13.92% of its assets to domestic asset managers and 12.93% to overseas firms.

Under the New System, 31.94% is held in cash, 0.72% in commercial paper, 12.69% in domestic fixed income, 0.55% in domestic equities and 5.77% in overseas investments. 24.15% and 24.18% are outsourced to domestic and overseas institutions respectively.

Performance of outsourced overseas mandates as of November 30, 2009

LPF (Old System)

Manager

Start date

Strategy

Original size ($m)

Current NAV

2009 return (%)

Total return (%)

Invesco

June 21 2007

global balanced

200

183.956

16.38

-8.02

UBS

June 21 2007

global balanced

200

192.207

26.76

-3.9

Fidelity

June 21 2007

global balanced

200

193.222

23.66

-3.39

Allianz

June 21 2007

global balanced

200

185.489

16.61

-7.26

Pimco

January 6 2009

global fixed income - enhanced

300

341.608

13.87

13.87

Loomis

January 6 2009

global fixed income - enhanced

300

344.819

14.94

14.94

BGI

February 5 2009

global equity - growth

200

277.73

38.87

38.87

DeAM

February 5 2009

global equity- growth

200

282.899

41.44

41.44

Invesco

November 17 2009

Asia Pacific equity - growth

200

195.248

-2.38

-23.8

LPF (New System)

AllianceBernstein

May 20 2008

global equity

250

166.986

31.59

-33.21

Newton

May 20 2008

global equity

250

173.85

30.33

-30.46

Templeton

May 20 2008

global equity

250

207.726

24.32

-16.91

AllianceBernstein

June 3 2008

global fixed income

250

279.41

15.68

11.76

Goldman

June 3 2008

global fixed income

250

287.161

13.9

14.86

Templeton

June 3 2008

global fixed income

250

262.403

14.89

4.96

Pimco

January 6 2009

globla fixed income - enhanced

300

341.569

13.86

13.86

Goldman

January 6 2009

global fixed income - enhanced

300

340.937

13.65

13.65

BGI

February 5 2009

global equity - growth

200

277.567

38.78

38.78

JP Morgan

February 5 2009

globla equity - growth

200

284.161

42.08

42.08

Allianz

November 17 2009

Asia Pacific ex-Japan equity

200

194.466

-2.77

-2.77

Invesco

November 17 2009

Asia Pacific ex-Japan equity

200

195.277

-2.39

-2.39

MSIM

November 17 2009

Asia Pacific ex-Japan equity

200

194.684

-2.66

-2.66

BGI

November 30 2009

passive global equity

200

199.862

-0.07

-0.07

SSgA

November 30 2009

passive global equity

200

199.931

-0.03

-0.03