Taiwan’s NT$570 billion ($18.5 billion) Public Service Pension Fund has asked fund managers to submit proposals for six NT$5 billion domestic equity mandates, for a total of NT$30 billion, by December 1.
The mandates will be for four-year terms and the target return is 200 basis points net investment return above the benchmark, which is the average dividend yield of listed domestic stocks over the past four years. PSPF will conduct quarterly reviews starting one year after the mandates are awarded. It may terminate or reduce the size of the contract if a portfolio loses 15% or more in value over one year.
Firms can invest in on-exchange and over-the-counter Taiwan equities, exchange-traded funds and approved IPO company stocks. They can also allocate (with no specified limit) to government bonds, bank debentures (excluding subordinated debentures), corporate bonds and asset-backed products. Use of derivatives such as index futures and interest rate swaps is also allowed for hedging purposes. Idle cash can be allocated to government bonds, short-term paper and bank deposits.
Applicants must have been around for three years and manage at least NT$10 billion of assets as of the end of October. The domestic equity funds must have three-year average return beating peers’ performance.
Over the past three years, Taiwan's 29 large-cap equity funds have generated an average annual return of 8% over three years, while 106 small-cap equity funds have returned 8.8%, as of yesterday, according to the Securities Investment Trust and Consulting Association in Taipei.
A fund manager can also qualify if one of its actively managed or index funds has run at least NT$1.5 billion in assets on a monthly basis for the past three years, with an average three-year return higher than the TWSE Weighted Index (Taiex) and annualised tracking error of below 10%. However, PSPF stressed that the final mandate will go to actively managed funds.
PSPF has issued eight mandates totalling $1.6 billion for global asset allocations this year: four for low-volatility and high-dividend income equity, and four for real estate equity and infrastructure equity.
PSPF outsources 32% of its NT$570 billion to external managers (13% for domestic portfolios, 19% for global). It runs 20% assets in equity and beneficiary certificates (16.6% domestic and 3.4% international) and 13.8% assets in fixed income in-house. The remainder is in bank deposits, treasury bills and commercial paper.
Apart from the benchmark, the requirements for the latest domestic equity mandates are similar to those for the five local equity RFPs issued in April last year, which were won in June last year by Allianz Global Investors, HSBC Global Asset Management, Prudential Investment Trust, Schroder Investment Management and Taipei-based Uni-President Assets Management.