Taiwan’s BLF to boost foreign exposure to 50%

The $88 billion Bureau of Labor Funds will increase its offshore allocation, largely by putting more into alternatives and equities, with a view to achieving a 4% return this year.
Taiwan’s BLF to boost foreign exposure to 50%

The Bureau of Labor Funds (BLF), which oversees Taiwan's public pension assets, will raise its overseas allocation this year to 50% from 42% as of the end of November. The move reflects the growing trend among Asian institutions towards greater international diversification of portfolios.

This year BLF, with $88 billion in AUM as of end-November 2015, plans to put 22% of its assets in overseas stocks, 18% in foreign bonds, and 10% in offshore alternative investments. These are estimates provided to AsianInvestor exclusively, as it didn’t release detailed allocation figures for international assets.

The aim of this allocation shift is to help achieve the BLF's goal of 4% investment return for 2016. But that is not an easy target in current conditions.

The performance of BLF’s funds has been on a roller-coaster ride from October to November along with the global markets. In October, it posted a record monthly profit of NT$50 billion ($1.5 billion, or 0.8%), bringing the total year’s profit to $426 million as of end-October. But they suffered a heavy loss in November and reported a year-to-November loss of $45.8 million, or -0.06%.

Huang Chao-Hsi, BLF’s director general, told AsianInvestor: “There have been many uncertainties in both domestic and overseas financial markets, and we expect volatility to remain huge this year.

“That’s why we’ll optimise our portfolio across global markets and increase asset allocation in overseas markets, particularly in overseas equity and alternative investments, to avoid the concentration risk of investing in our single domestic market,” added Huang.

“When markets slump, it’s generally a good time for long-term investors such as pension funds to plan and make their investments,” he said.

Across the six funds it manages, BLF had 42% ($36 billion) in overseas markets as of end-November, of which $10 billion was managed in-house and $26 billion by external firms.

As for its domestic allocation this year, the institution plans to put 14% of its AUM in bonds, 23% in stocks, 1% in alternatives and the remaining 12% in deposits with financial institutions and other projects.

Meanwhile, given the rising volatility in global equity markets since last year, BLF aims to reduce its portfolio volatility by appointing its first mandates for multi-asset allocation, Huang said.

On December 21, it invited managers to submit bids to run $5.3 billion of global portfolios, including $3.2 billion for its first global multi-asset allocations and $2.1 billion for enhanced Asia-Pacific equity strategies. The institution currently has $6.2 billion in smart-beta strategies. The new mandates will boost BLF’s externally managed AUM to $24.3 billion in 2016 from $19 billion currently.

The BLF has been a relatively early mover among Asian pension funds to diversify its assets with a view to achieving stable returns by adding more alternative and smart-beta investments. It said in early 2014 it planned to nearly treble its alternative exposure to 6% from 2.3%.

Institutional investors across the region have been increasingly moving to boost their offshore and alternatives exposure in the past couple of years. Examples include Korea Investment Corporation and Korea Post, Japan's Government Pension Investment Fund, Thailand's Government Pension Fund and various insurance companies.

BLF is an umbrella organisation set up in February 2014 to amalgamate the investment management of various Taiwanese public-sector pension funds, namely the Labor Retirement Fund (the new and old schemes), Labor Insurance Fund, Employment Insurance Fund, Arrear Wage Payment Fund and Occupational Accident Protection funds.

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