Taiwan's Bureau of Labor Insurance has invited fund managers to bid for five domestic investment mandates for its National Pension Insurance Fund (NPIF), for a total of NT$20 billion ($670 million). Each firm will manage a NT$4 billion portfolio.
Eligible securities include equities traded both on the TWSE and over-the-counter, corporate bonds, government bonds, convertible bonds, exchange-traded funds and index futures. Idle cash can be allocated to short-term paper, government bonds and other instruments authorised by the BLI.
Managers are allowed to buy index futures for hedging risk, and the total notional amount of open short-position index future contracts should not exceed the value of the corresponding securities held.
The target return is 2% higher than the benchmark – the average dividend yield of the securities listed on the Taiwan Stock Exchange for the past three years. The dividend yields for the years 2010 to 2012 were 3.58%, 5.65% and 4.12% respectively.
The applicant managers must have a two-year history of operation, with at least NT$1 billion in AUM in either an equity mutual fund or equity segregated account business on a monthly basis for past two years. The accumulated return of the fund for the past two years must outperform the TSEC weighted index or the required return for the segregated account.
The chosen fund managers will receive a 0.175% annual management fee for the first three months, after which the fee will depend on portfolio performance and will be calculated daily. The fee will then range from 0.05% to 0.15% when the return is negative or above 0% but misses the target return. For excess return above target, the management fee will be 0.2% to 0.3%.
In addition, a performance fee will be paid once the mandate expires. For fund managers whose accumulated returns meet the target and outperform the TSEC weighted index, this fee will equal excess return x 0.5% of the portfolio AUM.
As of the end of February, NPIF's AUM was NT$142 billion, with 72.59% allocated to the domestic market, of which 37.14% is in cash or equivalent and 30.52% is in securities. For the 27.41% of offshore assets, 23.34% is in debt securities and bond funds, and the remaining 4% in cash.
At end-February, 14% of assets were run by external managers, and were all domestic securities. All the foreign investments are currently run in-house.
In July NPIF issued a $1 billion overseas custody mandate, and BLI confirmed it plans to expand its overseas investment plan, but declined to give more details, as AsianInvestor reported.