Covid-19 is cutting into fresh investment mandates in Taiwan, where pension funds are becoming more prudent in offering external fund manager renewals amid a highly valued equity market.

The growing caution comes as a total of $10.9 billion worth of mandates, involving 11 contracts, expire in the second quarter of this year, according to Taiwan-based Keystone Intelligence.

Liu Li-ju, deputy director general of the Bureau of Labor Funds (BLF), told AsianInvestor the pension fund is taking a prudent approach and will slow down its process of appointing new asset managers following its bribery scandal last November.

Taiwan pension funds overseen by BLF, however, rebounded in the first four months of 2021 with an investment gain of NT$274 billion ($9.86 billion) after losing NT$316.6 billion over the same period last year, according to its monthly statement on June 1. The recent rebound brought its total assets to NT$4.78 trillion as of end-May.

BLF had in February told AsianInvestor that it still plans to invite bids for a domestic investment mandate worth at least NT$40 billion and possibly more than one offshore mandate worth up to $3 billion this year. A spokeswoman confirmed with the media in late June that this plan is still in the works and unchanged.

WELCOME COMEBACK

While BLF's asset resurgence is welcome and is seen as offsetting some of the latest market disruptions, the increasing caution among pension funds on the island appears to be in large part a result of uncertainties arising from the pandemic and a peaking in this year's equity market boom.

Liu Li-ju, BLF

Liu warned in the June 1 statement that global market conditions have become “increasingly complicated”, adding that while US fiscal stimulus measures are expected to support global economic recovery, India and many other emerging markets are being battered by rising coronavirus cases.

The deputy director general said she was keeping an eye on global market trends to prudently adjust domestic and overseas allocations of the fund.

In October last year, BLF invited bids for two overseas mandates — a $1.64 billion global infrastructure securities mandate and a $2.3 billion global multi-asset portfolio, both adopting active strategies. It announced the appointment of selected managers in March, which are the only mandates it has so far handed out this year. 

BLF in 2020 announced five mandates, totaling $9.7 billion, of which $6.24 billion were for offshore investments.

Public Service Pension Fund (PSPF), a local NT$73.8 billion pension fund, announced its up-to-$400 million Global Quality ESG Indexed equity mandate in April, but no further details have since been announced so far. A spokeswoman told AsianInvestor that it is still selecting the final managers for the mandate.

Taiwan’s overall pension balance stood at NT$5.86 trillion ($209.4 billion) as of end-of 2020, according to Pension Fund Association statistics.

COOL DOWN

Donna Chen,
Keystone Intelligence

“The pandemic has brought more uncertainties to the capital market - business trips and on-site mandate presentation/research can not be easily settled, and many public servants have been working from home since the latest outbreak,” Donna Chen, president from Keystone Intelligence, told AsianInvestor.

She believes that pension fund caution could be a feature of the market for some time yet. 

“Holding more cash in hand for unpredictable market movements is a reasonable [response]. Also, the equity market has been at a high valuation since last spring,” she added, noting that both reasons could make delay new mandates or slow down some renewable contracts in the second quarter of this year.

The Taiwan Capitalisation Weighted Stock Index has enjoyed some very robust gains, climbing from a low point of 9,234.01 on March 20, 2020 to 17,590.97 on Monday (June 28), close to doubling in 15 months.