Of all the winners of AsianInvestor's Institutional Excellence Awards this year, Taiwan's Bureau of Labor Funds is the most decorated, scooping three awards – including one for its director general's individual contribution. Here we outline why we felt the $106 billion institution deserved the plaudits it has received.

AsianInvestor has already announced the full list of winners by countrycategory and proficiency and published details last week of how we came to our final decisions. Scroll to the end of this article for links to the award write-ups we have already published.

The full list of write-ups, along with photos of the winners, will appear in the December issue of AsianInvestor magazine.
 

Pension fund (overall)

Taiwan’s Bureau of Labor Funds (BLF) has walked away with AsianInvestor's public pension fund award for the second consecutive year.

It won for multiple reasons, including continuous investment innovation, outsourcing of overseas mandates, cultivation of internal staff, transparency and its application of environmental, social and governance (ESG) disciplines.

Set up in February 2014 as an umbrella organisation to manage six public labour funds, BLF’s total assets under management have grown 38% over the past three years to reach $106 billion as of mid-2016.

The fund expects $7 billion in inflows a year. To manage this, BLF is on course to increase overseas allocations in its two biggest sub-entities – the Labor Pension Fund and Labor Retirement Fund – to 50% at end-2016 from 42% at end-2015.

It has been decisive in expanding its range of investments. Domestically, BLF uses exchange-trade funds to quickly build positions in equities and bonds, and smart-beta indexes to enhance performance and reduce management fees.

BLF had invested 32% of its NT$1 trillion ($31.5 billion) in foreign mandates via smart-beta strategies as of end-August 2016. It’s set to issue $2.4 billion in mandates for overseas ESG smart-beta passive equities by the end of this year, as it focuses more on socially responsible investing.

The fund has also built exposure in alternative assets, including venturing into private equity this year. It has also issued its first global multi-asset mandates in the past year.

Morever, a model of regional transparency, the organisation regularly discloses up-to-date information on its operations, asset allocation, securities holdings, performance and external managers, both on its website and social networks.

Innovation

As a big asset owner in a small market, the Bureau of Labor Funds (BLF) has had to take a global view in its asset allocation. Its proactive learning attitude and strong execution has led it to move into multiple new asset classes over the past five years.

BLF’s innovations in smart-beta strategies and alternative investment are the most noteworthy. It started applying smart-beta indices in 2011 to reduce risk and gain relatively stable returns versus traditional market-cap indices, as well as reducing its management fee costs. As of the end of August 2016, BLF’s foreign smart-beta investments accounted for 32% of its NT$1 trillion ($31.5 billion) in foreign mandates.

It issued $2.1 billion in smart-beta mandates for enhanced Asia-Pacific equity strategies in December 2015. It next intends to issue $2.4 billion in an overseas environmental, social and governance (ESG) smart-beta passive equity allocation by the end of this year, marking the first time it will have applied ESG principles to overseas equities.

BLF first invested in alternatives when it awarded its first mandates for global real estate investment trusts in 2011 and global listed infrastructure in 2014. It has since built exposures in other alternatives, including commodity, energy and direct real estate funds, as well as funds of hedge funds.

This year, BLF ventured into private equity funds. It also issued its first $3.2 billion global multi-asset allocations in late 2015, which it categorises as alternatives. In-house, the fund is studying an absolute-return strategy for alternative investments, to diversify portfolio risk.

BLF has applied its innovative thinking in traditional asset classes too. It is set to invest $3.6 billion in its first overseas absolute-return bond strategies this month, in the hope that external managers can control the downside risk surrounding expected interest rate rises in the US.

Fund managers and consultants say BLF’s ability to come up with innovative investment ideas and the confidence to issue big mandates to new types of assets stem from its frequent communication with them, along with dedicated staff training programmes and a robust internal risk-management mechanism. It is a seriously progressive pension fund.

Institutional Excellence Award write-ups already published:

HKMA (reserves manager) BLF director general (individual contribution) 

Future Fund (sovereign wealth fund) and AIA (insurance company)