Taiwan's Public Service Pension Fund (PSPF), a state body with $17 billion in assets, has invited bids to manage five four-year NT$5 billion ($168 million) domestic portfolios.
Fund houses must submit pitches by May 2 for what are the first domestic mandates the PSPF will issue this year. The target return is the Taiex Total Return Index plus 100 basis points, and managers must keep ex-post tracking error under an annualised rate of 6%.
The selected fund managers must build positions within 10 trading days, and PSPF will evaluate the performance after one year. Managers achieving the target return will be awarded additional assets to manage.
The biggest increase will be 100%, and assets are not allowed to exceed 10% of PSPF’s overall AUM. However, managers failing to meet the required return might have their quota cut or their contract terminated.
Management fees will be calculated on a daily basis. Managers will receive a fixed annualised 0.1% during the period of asset allocation. Once they are fully allocated, the annualised fee will be 0.05% if firms fail to meet the target return, 0.1% for meeting the benchmark but not the required return, and 0.15% for meeting the required return.
Permitted investments include domestic equities traded on exchange and over-the-counter, exchange-traded funds (ETFs), financial bonds, corporate bonds, government bonds and securitised assets. Managers can also trade index and interest-rate futures for hedging purposes, but if they want to do so, they must outline their risk-control strategy in their bid. Idle cash can be allocated to government bonds, short-term paper, bank deposits etcetera.
Eligible applicants should have at least three years' operating experience and at least NT$10 billion in mutual fund AUM. The three-year average return for domestic equity funds should be above the average return announced by Securities Investment Trust and Consulting Association, which has averaged 5.82% this year as of the end of March, 12.12% in 2012 and -22.35% in 2011.
A fund manager can also qualify if one of its domestic ETFs, equity funds or index funds has AUM of at least NT$1.5 billion on a monthly basis for the past three years, with an average three-year return higher than the Taiex Total Return Index and tracking error within an annualised rate of 12%.
As at the end of February, PSPF had a total AUM of NT$517 billion, 35% of which is run by external managers, 16% is in local- and foreign-currency deposits, 16% is in equity investment, 15% is in short-term paper and 13% is in bonds. Other investments include beneficiary certificates and account receivables and payables.