Taiwan’s fourth largest pension fund - the Public Service Pension Fund (PSPF) - is strengthening the ESG focus of its outsourced assets, selecting four fund managers for a $1 billion global ESG equity mandate.
This marks the second ESG mandate for the Taiwan pension fund following a global high quality ESG equity mandate starting September 2021, bringing its total outsourced ESG investment to $1.4 billion.
The four managers selected for the new ESG mandate are Schroder Investment Management, Allianz Global Investors, JP Morgan Asset Management (UK), and State Street Global Advisors Asia.
Each manager will manage $250 million in assets on behalf of PSPF under a five-year term, PSPF announced in early July.
The mandate is benchmarked against the MSCI ACWI Index, which tracks large- and mid-cap stocks across 23 developed and 24 emerging markets in different sectors.
“Large corporations and pension funds in various countries have been focusing on sustainable agenda, such as environmental protection, social responsibility and corporate governance, and integrating them into investment philosophy,” PSPF said in the announcement.
The four managers declined to comment on the client mandate and PSPF did not respond to requests for comment.
PSPF is the fourth largest pension fund in Taiwan with $24.8 billion of assets under management as of May 2022, with 46.4% of assets outsourced to external managers, according to PSPF and Keystone Intelligence, a Taiwan-based financial advisory firm.
In September 2021, PSPF selected BlackRock and UBS Asset Management to each manage $200 million for a global high quality ESG equity mandate - its first ESG strategy.
Since the contract started in September 2021, the mandate, which is benchmarked against MSCI ACWI Quality ESG Target Index, recorded a loss of 11.3% from UBS and 11.5% from BlackRock, beating benchmarks by 0.5% and 0.3%.
In the year to date, the strategy has been the worst performer compared with other non-ESG strategies.
Nevertheless, it's worth noting that the last mandate was fixed income issued back in 2018.
“I think the most important factor when issuing a mandate is whether you’ve chosen the right trend in the long-term,” said Donna Chen, president of Keystone Intelligence.
“And this is especially the case when the market is going through a downturn…You must have a long-term view and a good forecast on a years-long horizon,” she told AsianInvestor.
PSPF had three mandates on global equity, fixed income, and multi-asset that expired in June, accounting for more than $2 billion of assets managed by eight fund managers.
By deploying about half of these assets in an ESG strategy, Chen thinks it reflects their leading role as a government pension fund to showcase the government’s commitment to ESG and to encourage social awareness in Taiwan.
Unlike eight other pension funds in Taiwan that are regulated under Bureau of Labor Funds (BLF), PSPF is regulated by the Ministry of Civil Service to manage retirement funds for civil servants, education workers, and military personnel.
There has been an increasing trend in Taiwan’s pension fund industry to allocate assets into ESG themes.
Earlier this year, Taiwan’s largest pension manager BLF chose HSBC, Morgan Stanley and three others to manage what it calls Asia’s first climate change-focused strategy worth $2.3 billion in assets.
According to State Street, ESG is a trending focus for pension funds across Asia Pacific.
Instead of aiming to divest from certain sectors such as coal mining through ESG mandates, these asset owners are asking for more data and information from fund managers to better understand the impact of their investment, said Babloo Sarin, head of asset owner segment Asia Pacific at State Street.
“What we see is an increased focus from pension funds on their asset managers, when they are asking for much greater accountability of stewardship. So they're asking questions about how you vote. And it is not enough just to say it's ESG compliant. They are asking for much more transparency, more information and data on that,” Sarin told AsianInvestor.
But he stressed that the principle of these ESG mandates have not changed, which is the obligation of a pension fund to deliver long-term retirement outcomes for its members.
“I think a lot of institutions see the alpha generation and risk management are complementary rather mutually exclusive,” he said.