Taiwan quasi SWF puts state priorities before profits

The $18 billion National Development Fund is eyeing innovative start-ups, but it is more focused on supporting the firms than ensuring returns or practicing responsible investing.
Taiwan quasi SWF puts state priorities before profits

Taiwan’s National Development Fund (NDF) is eyeing local investments into seven industries that support government policy objectives, and it is willing to eschew traditional investment priorities and modern responsible investing practices to do so.

Clara Chang, deputy director at the NDF, told AsianInvestor that the quasi sovereign wealth fund prioritises investing into companies in the “five plus two” industries, and seeks to allocate at least NT$100 million ($3.27 million) each time it does so. 

The “five plus two” refers to five pillar industries – the internet of things, biomedical, green energy, smart machinery and defence, subsequently expanded to include new agriculture and the circular economy (related to the recycling of products). The sectors have been proposed by the administration of Tsai Ing-wen after she was elected to the island’s presidency in 2016.

Chang noted that NDF, which had NT$558 billion ($18 billion) in total assets as of end 2017, has no ceiling for each investment amount. However, the fund ensures that it does not invest more than 20% of a company’s value.

When making investments, NDF appears to prioritise supporting the government’s favoured industries over maximising its investment returns. When asked about the criteria for picking the invested companies and the relevant due diligence process, Chang would only say that the fund invests into companies that are “deemed promising”.

“We have a very high tolerance for [investment] risk,” she added, noting that NDF’s macroeconomic environment doesn’t tend to have much effect on its investment decisions, as the fund invests for the long term.

She added that the fund has about NT$40 billion in investable assets available now but has no rules over how many investments it must make or invest a minimum amount of its AUM each year.

Additionally, NDF does not apply any calculation for preferred investment yields. “We are a government fund and our early capital came from the government. We are not operating like a company, so we do not calculate investment yield,” said Chang.

A Hong Kong-based investment consultant told AsianInvestor that NDF is designed to give blessings to the industries that the government favours. This makes it difficult for the fund to have a quantitative investment target, because it could easily miss the goal.


The quasi-sovereign wealth fund’s politically-influenced investing pattern also impacts its approach to governance. NDF does not appear to be a strong supporter of responsible investing, acting largely as a sleeping partner.

“We won’t interfere into corporates’ business, we are just a shareholder,” she said.

This seeming disinterest contrasts with Taiwan adopted a stewardship code in June 2016. The code encourages investors to use their shareholder voting rights to influence the behaviour of companies they invest into in a constructive way.

The consultant noted that most funds in Taiwan such as endowments lack very systematic investment management – with the exception of big pension funds like Bureau of Labor Funds and Public Service Pension Fund.


NDF has long been called upon by whatever administration is in charge to support preferred government industrial policies.

It was established by the Executive Yuan in the 1973 with the objective of speeding up industrial innovation in Taiwan. To do so it mainly invests directly in domestic start-ups, but it also has NT$17 billion invested in venture capital funds.

Of late, this has meant supporting to seven sectors identified by Tsai’s government. The fund’s investments have particularly concentrated around ‘internet of things’, because Taiwan’s advanced technology manufacturers are more familiar with this area and the island boasts a concentration of talent here. Industries related to biotechnology and green technology are also actively seeking funding, Chang said.

NDF is not the only asset owner being called to support these sectors. In a financial development scheme released by the Financial Supervisory Commission on June 14, the regulator aimed to direct NT$150 billion of insurance funds over the next three years into the identified industries.

At the end of 2017, NDF had invested NT$48.31 billion directly in 46 companies. One of its landmark investments was into Taiwan Semiconductor Manufacturing Company (TSMC), one of Taiwan’s largest companies and a chip supplier to smart phone producer Apple 1986. It still holds a 6.37% stake in the company.

The fund pays part of the investment return to the government’s fiscal reserve every year, which are mainly cash dividends and interest incomes. Last year it paid NTD1.2 billion to the National Treasury, but did not pay anything in 2015 and 2016, according to its latest annual report.

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