Taiwan’s BLF plans $6bn of new types of mandate
The $111 billion state retirement fund plans to select external asset managers in December to run its first overseas ESG smart-beta equity and absolute-return bond portfolios.
Taiwan’s Bureau of Labor Funds (BLF) will issue $6 billion in new types of mandates next month, continuing its push to diversify its portfolio.
The NT$3.5 trillion ($111 billion) state pension will invite managers to bid to run a $2.4 billion portfolio for its first global environmental, social and governance (ESG) smart-beta passive equity allocation and $3.6 billion of overseas absolute-return bond strategies. This will be the first time BLF has issued mandates for these types of investments.
Details of the two mandates will be announced on the institution’s website in December, and manager selection will be completed in first half of next year, the pension fund said in a statement today. It did not indicate how many managers it planned to appoint.
Rising ESG focus
In respect of the ESG mandate, this is the first time BLF will have applied the socially responsible investing principle to overseas equities.
The portfolio companies must meet environmental, social and governance responsibilities, and cannot come from industries involved in tobacco, alcohol, munitions, gambling or pornography. Moreover, they must not have been involved in major controversies in environmental, client services, human rights, labour rights, suppliers or corporate governance issues, BLF said.
The ESG mandates will adopt a mixed smart-beta index strategy comprising certain factors – high quality, low volatility and enhanced value – to optimise portfolio return amid the increasing volatility of global equity markets, BLF said.
As of the end of August, BLF’s foreign smart-beta investments accounted for 32% of its overall NT$1 trillion in foreign mandates, up from 30% on December 31. The fund plans to continue raising its allocation to smart-beta strategies because they offer sound and stable returns in the long term and diversify portfolio risks, director general Huang Chao-hsi told AsianInvestor last month.
BLF said almost all (95%) of its domestic equity investments are in companies that are strong on corporate social responsibility, amounting to AUM of NT$475.4 billion as of June 30.
The fund has also issued two domestic ESG-related mandates for a total of NT$60 billion (NT$30 billion for each). They track the Taiwan Employment Creation 99 Index (mandate awarded in 2011) and the Taiwan Top Salary 100 Index (awarded in 2014).
The former index tracks the 99 TWSE-listed companies that hire the most Taiwanese employees, while the latter the 100 domestic companies that pay the highest salaries.
Moreover, BLF was among the first batch of signatories for the Stewardship Principles for Institutional Investors launched by the Taiwan Stock Exchange in early August this year.
BLF said it would continue increasing its allocation to ESG investments and it hoped to lead more Taiwan investors to become more focused on this area.
BLF’s efforts on this front reflect a growing trend among institutional investors in Asia to focus more on ESG factors. Fund houses are recognising this – for example, Canada’s Manulife Asset Management hired Emily Chew its first global head of ESG research and integration and located her in Hong Kong in October.
Another rising recent trend, given ultra-low bond yields, has been the growth in popularity of absolute-return fixed income funds – typically unconstrained strategies that aim to provide positive performance at all times.
While bond yields have fallen and even turned negative in some markets, fixed-income assets are still important for pension funds globally, BLF said.
Hence the institution will issue its first foreign absolute-return bond mandates, in the hope that managers can improve investment returns with active and flexible management and effectively control the downside risk of expected interest rate rises in the US.
Of the six funds* BLF manages, the biggest two – the Labor Pension Funds (new and old schemes) and Labor Insurance Fund – ran NT$289 billion in foreign bond mandates as of end-September. That accounted for about 29% of their overall NT$1 trillion in foreign mandates.
BLF’s overseas fixed income strategies include global bonds, enhanced global bonds, global emerging-market bonds, global credit and enhanced global sovereign credit.
*The six funds are Labor Pension Funds (new and old schemes), Labor Insurance Fund, Employment Insurance Fund, Occupation Incidents Protection Fund, Arrear Wage Payment Fund and National Pension Insurance Fund.
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