FTSE wins $3.3 billion in Taiwan pension mandates

FTSE Group revealed yesterday it has won three new mandates totalling $3.3 billion from two of Taiwan’s largest pension funds, as they move to diversify their service providers and portfolios.

The index and data provider announced that the Public Services Pension Fund (PSPF) had picked the FTSE All-World Index for the first time as benchmark for its $600 million global developed-equities mandate.

Asked why it has chosen FTSE, a source within PSPF tells AsianInvestor: “We have been using MSCI solely [for equity benchmarking] and the supervisory board suggested a change of index provider for diversification.”

In fact, FTSE is the first index provider that PSPF has picked for a mandate other than MSCI. “Going forward, we would consider other index companies for new mandates,” the source adds.

The FTSE All-World Index has gained 22.02% over the past year, with 1.78% over three years and 23.07% over five years, with a yield of 2.28%.

Meanwhile, Taiwan’s Labour Pension Fund (LPF), which already benchmarks against the FTSE All-World Index, extended that relationship by allocating $1.8 billion to track the fundamentally weighted FTSE RAFI All-World 3000 Index. LPF also allocated $900 million to the FTSE EPRA/NAREIT Global Real Estate Index.

Since its establishment three years ago, LPF has concentrated on traditional investments in equities and fixed income, so this is a clear departure from that strategy.

“Gradually we need to allocate some assets into alternative categories, so this year we have started to invest into alternative assets,” notes Ed Su, director of the investment management division on the LPF supervisory committee.

He adds that the EPRA/NAREIT was chosen because the fund sees property as a suitable investment in an inflationary environment, and within that it sees real estate investment trusts with good liquidity as the most efficient means to access the asset class.

Jessie Pak, Asia director for FTSE Group, notes that FTSE has been engaged in Taiwan since 2002 and has mandates with three of the island’s four largest public funds, namely LPF, PSPF and the Bureau of Labour Insurance.

She suggests there were two reasons why LPF chose FTSE indices. “Firstly they want to diversify within global equities, and secondly they have responded to good performance.”

The FTSE RAFI All-World 3000 Index has gained 24.23% over the past year, 9.69% over the past three years and 40.14% over the past five years, with a yield of 2.46%; the FTSE EPRA/NAREIT Global Real Estate Index has gained 26.99% over the past year, dropped -5.14% over the past three years and gained 11.38% over the past five, with a yield of 3.43%.

In Asia, FTSE has previously licensed non-market-cap-weighted indices such as the FTSE RAFI in Australia, Hong Kong and Japan, with a FTSE Group spokesperson saying that most of the major trust banks in Japan are providing investment solutions to pension funds using either the FTSE GWA or FTSE RAFI indices.

“Investors are looking at new alternatives to market-cap weighted indices, not necessarily to replace their market-cap weighted benchmarks, but as an additional tool to diversify their core passive portfolios,” the spokesperson adds.

FTSE Group covers asset owners in Asia through Pak and director of relationship management Paul Hoff. Pak confirms the team is looking to add an additional resource this year.

FTSE has 33 staff in its Asia hub of Hong Kong encompassing sales and marketing, client service, operations and research. It has satellite offices in Beijing, Shanghai, Sydney, Tokyo and Mumbai.

Pak suggests FTSE is looking to expand its services in Australia and perhaps add more sales staff in Hong Kong.

Only last month, Taiwan’s PSPF announced it was seeking managers for a total of $1 billion in foreign mandates. Out of the total, $400 million is allocated for emerging markets equities ex-Taiwan mandates and $600 million for international equities mandates.

In January this year it was announced that PSPF had selected Russell Investments as its transition manager, the first time a pension fund on the island had done this via a competitive open tender process.

Russell Investments now manages transitions for PSPF of various non-Taiwanese assets, including global and emerging markets equities portfolios under a five-year contract.

Also in January this year, the LPF announced plans to award $5.8 billion in equities mandates, with $2.5 billion for domestic asset managers in local equities and $3.3 billion for foreign asset managers in global equities.

The PSPF is a mandatory defined-benefit scheme for civil servants, teachers and military personnel in Taiwan with assets totalling over $16 billion.

The LPF is Taiwan’s government pension fund for the labour force and boasts assets totalling over $39 billion.