Has the hard work of the Taiwan Bureau of Labour Insurance over the past decade come to naught? According to the latest statistics published by the Labour Insurance Fund, its total asset size has halved since the beginning of the year from NT$427 billion ($12.8 billion) to NT$215.4 ($6.5 billion) as at end-October. This is even lower than the level reached in 1997 of NT242.6 billion ($7.2 billion).

As at end-October, the Labour Insurance Fund had a 23.32% allocation to overseas markets and a 76.68% exposure locally. 36.66% of its total assets were outsourced to external fund managers. The fundÆs overseas portfolio was worth NT$50.23 billion ($1.5 billion).

The fund outsourced two major batches of overseas investment mandates in December 2005 and October 2007.

The 2005 portfolio, originally worth $400 million, is up by just 3.64% since inception. Among these mandates, the Wellington global equities portfolio benchmarked to MSCI World was down by 0.73% at end-October. The index return over the same period was at 0.354%. The AllianceBernstein portfolio, meanwhile, was down 11.65%.

Pimco and AllianceBernstein were also mandated to run two portfolios benchmarked to Lehman Brothers Global Aggregate, excluding triple B+ securities. While index performance was up 18.25% overall, Pimco and AllianceBernstein delivered 12.38% and 14.56%, respectively, by end-October.

The Labour Insurance Fund experienced a 14.3% loss on its second batch of mandates given out in October 2007, which were originally valued at $868 million. In the 12 months to end-September, AllianceBernsteinÆs portfolio of European equities was down 40.78% (FTSE All World Europe was down 30.71%); JanusÆs US equities portfolio was down 23.95% (FTSE All World û US was down 21.88%); InvescoÆs $65 million mandate (which is 60% invested in FTSE All World Small Cap and 40% invested in the FTSE Small Cap index) was down by 39.11%, while the index was down 26.24%; VontobelÆs FTSE All World Emerging Markets ex-China and Taiwan portfolio was down by 26.21%, while the index was down 29.34%.

Separately, the fund outsourced three passive fixed-income mandates in October last year. State Street Global Advisors and Vanguard delivered returns of 5.56% and 3.32%, respectively, against a 3.589% gain on the Lehman Brothers Global Treasury Index.

Behind the asset destruction lays an increasingly aging Taiwanese population who depend on the fund for benefits that range from disability income, health insurance, unemployment support, and most importantly, retirement income. The Labour Insurance Fund, along with the Labour Pension Fund, are major pillars of pension benefits for the Taiwanese.

A Labour Insurance Fund official has warned of a foreseeable insolvency coming in the next 20 years because the fundÆs assets are not growing fast enough to cover its rising obligations to Taiwanese retirees. When that happens, the Taiwan government will be required to foot the billion-dollar bill that may span up to decades.

In the near-term, the fund is also facing a liquidity crisis. More newly qualified retirees who fear that the fund may cut monthly payments are pressing for lump-sum payments. Meanwhile, local unions and politicians are pushing for higher replacement ratios to participantsÆ retirement income. This has the Bureau of Labour Insurance scratching its head over where the cash flow will come from amid its newly halved asset portfolio.