Taiwan’s asset managers are looking forward to several developments they hope will expand the local investment pool and enable them to grow their client base, said Jeff Chang, chairman of Cathay Securities Investment Trust (Cathay Site).
They are the launch of pension fund member choice and regulatory approval for them to invest in both hedge funds and private equity, noted Chang, who is the newly elected chairman of Taiwan’s Securities Investment Trust & Consulting Association (Sitca).
The hope is that such developments would provide more business opportunities, he noted, as the local funds industry is concerned that competition is too fierce, in the sense that margins are too thin and products overly similar.
Chang said he hoped the changes – which he sees as key objectives following discussions with industry participants – would happen in the coming three years.
Pension fund member choice
Asset managers are working with the regulator to bring the member choice scheme to reality, with the forthcoming online fund distribution platform seen as the mostly likely venue for it, said Chang. The government-supported online fund platform, Fund Rich Securities (FRS), is expected to launch by September, he told AsianInvestor.
The member choice scheme would bring huge asset pool to the local fund houses, Chang said. Taiwan had NT$1.6 trillion ($50 billion) of assets in pension funds as of May 31, which receive at least NT$200 billion of new contributions every year.
Employers must contribute at least 6% of each staff member’s monthly salary into their pension account, and employees can choose to put 6% of their salary into the account as well. These accounts are managed by by the Bureau of Labor Funds (BLF). The member choice scheme would give employees the right to construct their own investment portfolio or leave it to the BLF to manage.
The Financial Supervisory Commission (FSC) is supportive in establishing the pension fund member choice platform, said Chang; it’s just a question of how to implement it and educate investors.
The time is ripe to launch a pension fund member choice platform, he said. Five to 10 years ago, Taiwanese investors focused on equities and were more speculative in investing, but now they value the concept of asset allocation and regular income.
The member choice system should also help relieve the pressure on the government to offer guaranteed pensions, assuming some individuals choose to invest by themselves rather than opt for the guaranteed payment.
Chang said FRS's status as a neutral, quasi-government entity made it the most suitable venue for pension member choice. The FRS online supermarket can feature all of the 1,729 onshore and offshore funds on offer in Taiwan (as of June 30), Chang said. FRS may even have robo-advisory functions focused on constructing a portfolio for retirement.
Offshore funds domiciled overseas will not be included in the member choice scheme.
Hedge funds and PE funds
As for the other coming changes, Taiwanese investors are ready to run hedge funds, Chang noted, and the FSC is open to allowing such strategies. It is gathering information on best practice and risk management on how to introduce them to the market.
Local asset managers will probably start with hedge funds investing in their home market, before allocating elsewhere in Asia. For global investment, it’s more likely to be in the form of funds of hedge funds, Chang said.
As for private equity, Taiwanese fund houses are not allowed to invest in the asset class directly, although they can allocate to PE funds through private placement.
Private equity is attractive to wealthy investors and can help finance the development of unlisted companies, especially those in the five key industries the government is promoting, Chang said. Those are green energy, national defence, biotechnology, smart precision machinery and the establishment of an Asian equivalent of California's Silicon Valley.