Taiwan’s BLF turns conservative on overseas mandate after record half-year losses

In the face of turmoil in both overseas and domestic markets, it would be a safer bet for the $195 billion Taiwan pension system to turn cautious about outsourced overseas assets.
Taiwan’s BLF turns conservative on overseas mandate after record half-year losses

The Bureau of Labor Funds (BLF), Taiwan’s largest pension body overseeing eight pension funds, is showing signs of conservativeness on new global mandates while reporting record half-year losses of 8.66% since its establishment in 2014.

Rocked by the slump in both global and domestic equities and bonds, BLF lost NT$482.6 billion ($16.1 billion) in the first six months of 2022. Its assets under management (AUM) stood at NT$5.84 trillion ($195 billion) as of end June.

The 8.66% loss is worse than other large Asia-Pacific pension funds’ performance in the same period, compared to a 3% loss from Japan’s Government Pension Investment Fund (GPIF), or a 7.3% loss from AustralianSuper.

Another major pension fund in the region, Korea’s National Pension Service (NPS), reported a loss of 4.7% as of end May.

Following the half-year results, BLF’s second mandate this year has been closed for application as of Wednesday (Aug 10).

It is a $3 billion absolute return bond mandate on behalf of Labor Pension Fund - the largest pension fund under BLF supervision - to be managed by six managers with $500 million each, under a five-year term, the request for proposal was announced on July 5.

The mandate is benchmarked against the US 3-month Treasury bill yield plus 2.5%.

“Under a tumultuous global market, it’s safer for pension funds to move some assets from expired global mandates to in-house management, or re-deploy them into conservative asset classes,” said Donna Chen, president of Keystone Intelligence, a Taiwan-based financial advisory firm.

As of the end of May, BLF outsourced 52% of assets, including 40% to global managers and 12% to domestic managers. Overseas assets accounted for about 52% of BLF’s total assets.

Data from Keystone Intelligence showed that the three largest pension funds under BLF saw double-digit losses - some over 20% - in several outsourced overseas risky asset mandates year-to-date, some of which were just issued in June or earlier this year.

This includes global real estate investment trust (REITs) strategies, global high-dividend equity, global multi-asset, and global enhanced bond.

Labor Pension Fund's new active global mandates (Source: Keystone Intelligence)

Noting that it is possible that the renewal and issuance of new mandates are predetermined and not easily altered, Chen thinks BLF could be more prudent on outsourced assets and be more flexible in making timely adjustments to new mandates.


Among BLF’s record half-year losses, the Labor Pension Fund lost 8.8%; while next-in-size Labor Retirement Fund lost 10.21% and the third-largest, the Labor Insurance Fund, lost 9.13%.

Announcing the result last week, BLF noted that in the first half of 2022, the global pandemic and the Russia-Ukraine crisis severely impacted the global supply chain, which accelerated inflation and tighter monetary policies, weighing on corporate earnings and economic growth.

This has led to a slump in both equity and bond markets globally. Among them, the Nasdaq Composite, which has a large impact on Taiwan’s semiconductor industry, slumped 30%, and the Taiwan Capitalization Weighted Stock Index (TAIEX) lost 18.62%. The Barclays Aggregate Bond Index also lost 13.9% due to global rate hikes, BLF noted.

Taiwan’s stock market saw the second largest loss among the world’s major stock indexes, only behind Nasdaq.

Source: Global SWF

Domestic assets accounted for about 48% of total AUM, with Taiwan stocks making up about 43% of all domestic assets.

Despite the short-term losses, long-term investments remain robust, BLF noted. As of the end of June, its 10-year annualised return rate was 4.15%, while the five-year return rate was 4.33%.

BLF also pointed out that the Labor Pension Fund provides a minimum guaranteed return equivalent to the two-year time deposit, which protects workers from losses.

The minimum guaranteed annualised yield was 0.79% in 2021.

Looking ahead, BLF believes inflation will persist amid the Russia-Ukraine war and the pandemic, while central banks are still under pressure to raise rates. There is also a rising risk of emerging market bond default. All factors will continue to weigh on global economic growth, BLF said.

“BLF adopts a long-term investment perspective. Despite uncertainties in the short-term, we will examine the global political and economic situation, follow asset allocation plans, select the best long-term investment targets at low prices, and prudently manage investment risks to enhance the long-term return,” it said.

BLF was under fire in early 2021 because of a bribery scandal that involved the head of its domestic investment division, Yu Nai-wen, who has since been terminated and indicted; and asset managers Fuh Hwa Securities, Uni-President Asset Management, and Capital Investment, all of whom have been terminated and barred.

As a result, BLF’s director general Tsay Feng-ching was transferred to the Labor Ministry and was replaced by Su Yu-ching, a former chief executive officer at the Taipei Exchange.

“There are significant clouds currently hovering over the investment management industry in Taiwan, and it is yet to be seen how the situation will evolve,” said Diego Lopez, managing director at Global SWF, a data platform that tracks sovereign investors. 

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