BLF invites bids for $6bn in ESG and absolute-return mandates

Taiwan’s Bureau of Labor Funds (BLF) invited bids today for two five-year overseas investment mandates worth a total of $6 billion: its first for environmental, social and governance (ESG) and absolute-return fixed income portfolios.

The NT$3.5 trillion ($110 billion) state pension manager is awarding the portfolios on behalf of four of its sub-funds – the Labor Pension Fund (LPF), Labor Retirement Fund (LRF), Labor Insurance Fund (LIF) and National Pension Insurance Fund (NPIF).

Following the plan BLF set out in early November, it is putting $2.4 billion into a Global ESG (environmental, social and governance) Quality Mix Equity Indexation mandate and $3.6 billion into the absolute-return fixed income portfolio.

The ESG mandate is split, with $1 billion for LPF, $600 million for LRF, $400 for LIF and $400 million for NPIF. The mandate for each fund will be spread equally across four managers.

This is the first time BLF will have applied socially responsible investing principles to overseas equities. “Our main considerations for the ESG mandate are to assume our social responsibilities, build up core asset allocation, optimise performance and control risks via smart-beta strategies,” BLF told AsianInvestor.

The bond allocations will be split into $1.6 billion for LPF, $1.2 billion for LRF, $400 million for LIF and $400 million for NPIF. Again, the mandates will split evenly across four managers.

BLF has gone for an absolute-return rather than a relative-return bond strategy against benchmarks given the high probability of interest rate rises in the US. That way, managers will have more flexibility to take opportunities in different markets and type of debt, the fund told AsianInvestor.

BLF did not say when it would make its final choices, but said it would notify qualified applicants and ask them to make a presentation and respond to inquiries. The presentations are expected to be made in March. 

Assessing track record

Applicant managers must have track records of at least three years and global assets under management of at least $5 billion as of September 30. They must submit strategies with at least three years of track record as of the same date.

For the ESG strategy, applicants must use one of three benchmark types and submit the past three years’ cumulative gross rate of return for each product. The strategies must have no higher than 0.5% annualised ex-ante and cumulative ex-post tracking error against the benchmarks in the past three years.

The usable benchmarks are the MSCI All Country World Index (Acwi) or FTSE All World Index; MSCI World Index, FTSE World Index or FTSE Developed Markets Index (on a standalone basis or blended with an MSCI or FTSE emerging market index); or MSCI Acwi ESG Index, FTSE4Good Index, S&P Ethical Global 1200 ESG Index or another sustainability-related global equity index.

For the absolute-return mandate, BLF targets annual returns of US dollar 3-month T-bill yield plus 2.5%, net of all fees and taxes. Standard deviation should not be higher than 6% per annum.

Applicants’ proposed product must be a multi-sector bond strategy and must not use simulated performance data. The products must be benchmarked to one of the following: T-Bill Index, Libor Index, other index based on cash rate, index with reference to inflation rate, or specified rate of return; the Bloomberg Barclays Global Aggregate Bond Index or another global aggregate bond index; a multi-sector composite index based on global government, global credit and other bond categories.

For both the ESG and bond mandates, any composite index should comply with the CFA Institute's Global Investment Performance Standards.

Investment performance accounts for 20% of the selection criteria weighting, with 30% weighted to investment talent, 35% to investment process and 15% to servicing.

Other criteria

An investment manager may apply for both mandate types for all the institutions at the same time. Only one asset management company per financial group can submit proposals for each of the two mandates. Applicant firms must have a branch, operating venue or service team in Taiwan.

The deadline for applications is 5pm on January 16. Application forms and more details can be found on BLF’s website.

The new requests for proposals are the only ones that BLF will have issued in 2016. The last ones they issued were the $3.2 billion for its first global multi-asset allocations and $2.1 billion across enhanced Asia-Pacific equity strategies at the end of December last year.

The global multi-asset mandates were awarded to Allianz Global Investors, JP Morgan Asset Management, Deutsche Asset Management and Pinebridge. The Asia-Pacific mandates went to BlackRock, Northern Trust and Vanguard.

BLF won two of AsianInvestor’s Institutional Excellence Awards this year, one for overall regional pension fund (for the second year running) and the other in the innovation category. In addition, director general Huang Chao-hsi received the individual contribution to institutional investment award.