Taiwan’s Bureau of Labor Insurance (BLI) is seeking three firms to manage overseas equity portfolios. The mandate, for a total of $600 million, is expected to be invested mainly in developed-market equities and will boost the institution’s overseas equity portfolio by almost a third.
BLI will appoint three investment managers to each run a segregated $200 million portfolio. This is the first time the fund has issued an RFP for mature equity markets since 2004. The deadline for submissions is August 8.
As of the end of May, BLI had NT$55.7 billion ($1.93 billion) in overseas equity investments, NT$35 billion of which it manages internally. Wellington, appointed in 2004 for the first overseas mandate, manages $304.8 million in global equities (as of May 31). Janus Capital and Vontobel, both appointed in 2007, manage $127.5 million in US equities and $286.8 million in global emerging-market equities respectively.
The new mandate will boost BLI’s overseas equity allocation from 13% to 17% of its total AUM of NT$418.5 billion. The term of the BLI mandates are five years and is renewable subject to performance.
BLI expects the prospective investment managers to achieve net annual returns 2% higher than the benchmark (MSCI World Index – Developed Countries) on a rolling three-year basis, and to keep tracking error within 4–8% a year.
The applicant managers must have a history of more than three years of operation as of March 31 and more than $5 billion AUM worldwide in separate accounts and commingled funds that solely comprise institutional investors.
The chosen managers will be allowed to invest in shares of listed companies traded both on exchanges and over-the-counter markets, as well as exchange-traded funds and real-estate investment trusts. Investments in convertible bonds are not permitted unless obtained through corporate actions.
Managers will be allowed to use derivatives up to a certain level, and will not be allowed to short or use leverage. On any one business day, the market value of open long- or short-position derivatives contracts shall not exceed 20% of the accounts’ net asset value. In addition, the total notional amount of open short-position derivatives contracts must not exceed the market value of the corresponding investment position.
BLI also specifies in the investment guidelines that the first stop-loss point will be triggered when the cumulative return of the portfolio falls below the target return by twice the mean of the tracking error (2 x 6% = 12%). If the loss exceeds 30%, BLI will require the return of all or any portion of the fund assets or to terminate the agreement.