Taiwan’s Public Service Pension Fund (PSPF) is inviting asset managers to pitch for three global fixed income mandates totalling up to $450 million. It’s the first time the fund has handed out such mandates since 2007.
The PSPF, which only this June awarded $1 billion in global equity mandates to five fund houses, has no external managers investing in global fixed income markets at present after its four-year international fixed income ex-US Treasuries mandate expired earlier this year.
The new four-year fixed income mandates are predominantly to invest in investment grade corporate bonds, as well as debentures issued by banks, beneficiary certificates including exchange-traded funds and derivatives both for hedging and investment enhancement.
The pension fund has chosen Barclays Capital Global Aggregate Corporate Bond Index as the benchmark and requires applicants’ un-hedged total return in US dollar terms to have beaten the benchmark for the last three years.
Selected managers are asked to achieve an annual return 50 basis points higher than the benchmark and control ex-post tracking error under 6%.
They are also required to have an operating history of at least three years and an AUM of $10 billion from institutional investors by the end of the first half of this year. Further, applicants need to have a local presence with at least three staff in Taiwan.
The PSPF says it expects managers to build positions within 10 trading days once a mandate has been granted, with their performance to be evaluated on an annual basis.
Outperformers may see their investment quota increased up to 100%, although the total assets that one fund house can manage cannot exceed 10% of PSPF’s overall AUM, which as of August 31 stood at NT$478 billion ($15.7 billion). Of this total, 43% is managed externally by both domestic and international managers.
On the other hand, if a manager’s performance does not meet expectations, PSPF may reduce its investment quota or even terminate the contract.
The pension fund will receive applications until October 26.