TaiwanÆs PSPF readies $500 million in mandates

Taiwan's Public Service Pension Fund (PSPF), an arm of the Ministry of Civil Service, is about to issue requests for proposals (RFPs) to international fund managers and custodian banks. PSPF executives expect to implement the mandates by mid-December, making the PSPF the first Taiwanese pension fund to invest overseas. The move has been long anticipated but was delayed in the wake of Sars and the American invasion of Iraq. But the internal paperwork necessary to move forward was signed off this week.

Michael Chen, auditor and member of the PSPF management board, says the organization will offer five mandates to five fund managers, each worth $100 million. Three will be for actively managed balanced portfolios and two for enhanced-indexed equity portfolios. He expects RFPs to go out in about two weeks.

The PSPF was also the first Taiwanese pension fund to sign up domestic external fund managers, with mixed results. It has released two batches of NT$15 billion ($436 million) equities mandates to a variety of locally domiciled fund managers. It was criticized for paying niggardly fees and short-term mandate horizons. It has also found performance by managers such as International Investment Trust poor and has sacked them.

Nonetheless the PSPF's need for diversification and professional management continues to drive its outsourcing programme, and in November it expects to release another NT$30 billion ($873 million) to fund houses.

Chen says the PSPF has taken away a few lessons from the experience that it can apply to its overseas scheme. The most important change is that managers won't be selected purely on the basis of who promises the lowest fees. Indeed, he says now fees will only account for about 30% of the bidding process. The PSPF will emphasize managers' investment philosophy and process, and their ideas for specific mandates. Brand names and size will probably play a role in this inaugural selection as well. Fortunately for managers, they will not be required to have an office in Taiwan (apparently the central bank had pushed for winners to have a branch there, but this was rebuffed).

The PSPF needs a global custodian as well, and is looking for banks with strong credit ratings and a large amount of assets under custody.

The second thing the PSPF wants to change is the mandate length. For now its internal rules require these mandates be for two years, but this is being reviewed. Chen says the PSPF is considering making mandates extend as far out as five years.

Assuming the PSPF is satisfied with the first batch of overseas investments, it will look to release more money next year. Chen says it may then consider more adventurous mandates including alternative investments, and look at smaller fund managers as well.

The organization expects around 30 fund managers to bid for the active balanced mandates, and 10-15 to chase the enhanced equity index work. Chen, a motorcycle aficionado, says fund managers interested in more information can contact him at [email protected], or visit the website www.fund.gov.tw.