Taiwan’s LPF issues $1 billion domestic RFP mandate

Taiwan’s Labour Pension Fund (LPF) has advertised new absolute-return domestic RFP mandates on its website.

It is inviting locally incorporated asset managers to run a total of NT$30 billion ($1 billion) under its old pension fund system and achieve an annual return target of 9%.

The four-year mandates will be shared among six managers. This is the second time this year that LPF has issued mandates. The last batch was domestic relative return equity mandates.  

But achieving the target return will evidently be a challenge. According to LPF performance data, since 1987 the Old Labour Retirement Fund recorded returns above 9% only three times, in 1990 (9.1%), 1991 (10.5%) and 2009 (13.4%). Last year the performance was -3.5%.

The base management fee will be 0.12%, taking performance into account, while adjusted fees payable to selected managers vary between 0.05% to 0.65%. The lowest applies to managers whose return is negative and below the Taiwan Stock Exchange Corporation (TSEC) weighted index, and the highest to those who achieve returns four times that of the target rate.

For instance, a manager whose returns falls in the range of 2 and 2.5 times target rates (18% to 22.5%) will receive fees of 0.3%, combining a base rate of 0.12% and 0.18% in performance fees.

In addition, at the time the mandate expires, external managers will receive 0.3%, 0.4% or 0.5% if their performance hits target and exceeds the TSEC weighted index in the period. For instance, if the manager’s excessive return is in the range of 70-100%, the additional fee will be 0.4%.

According to the guidelines, selected managers can invest in domestically listed equities, corporate bonds and government bonds. Each trustee can invest no more than 10% of a mandate’s AUM in a single stock (5% in the over-the-counter market), and 5% in a bond issued by a financial institution or corporation.

Trading in stock index futures is permitted. Short-hedged trades cannot exceed the cash position of total stock holdings for that day and overnight long position cannot exceed 15% of the total net value of AUM.

Eligible applicants must have had an operating history of more than three years by the end of January 2011 and total AUM above NT$10 billion.

Any equity or balanced fund managed by the applicant needs to have had an AUM consistently above NT$ 1 billion for the past three years and an accumulated return above the median, according to rankings of the Securities Investment Trust and Consulting Association.

Applicants should also demonstrate accumulated returns on institutional clients’ mandates that have consistently hit return targets or beaten the TSEC-weighted index over the past three years.

The LPF will not consider asset managers if they have had mandates terminated due to poor performance between June 30 last year – when its last domestic absolute-return mandate commenced – and February 20 this year.

LPF set the application deadline for March 6 and says it will finish the review process by March 30.