Taiwan pensions to treble alternatives exposure

Taiwan’s new Bureau of Labour Funds (BLF) – set up to integrate regulatory and investment oversight of the country’s public pension funds – is formulating its first investment plan and aims to finalise it by November.

“We’re now reviewing the asset allocation of our funds and trying to diversify their investment for 2015,” says Liu Li-Ju, deputy director-general of BLF, who oversees the fund’s foreign portfolio. “We will review their portfolio and decide whether they should add more types of investment or asset classes.”

One thing is for sure, the BLF plans to raise substantially its exposure to alternative assets, as the allocation is relatively small now, notes Liu. It aims for alternatives to account for 6% of the total portfolio in 2015 up from 2.3% now. The initial preference will be to buy alternatives that can track benchmark indices. 

Liu does not rule out the possibility of investing in private equity, but says it is not under consideration at the moment for reasons of transparency.

“We need to seek investment that is highly transparent in disclosure,” she says. After all, the pension has to use mark-to-market accounting, but it is more difficult to calculate asset value and returns for PE assets.

BLF’s overseas exposure is 37% of its total NT$2.5 trillion ($83 billion) in assets. It does not plan to issue any new foreign mandates until next year, although it is starting to deploy funding for two batches of mandates it issued in 2013. Once it has done so, total offshore exposure will rise to 45%.

One batch is the $400 million across global real estate and global infrastructure assets, for which it invited bids in December. BLF will announce the four chosen fund managers by the end of April, notes Liu. Other mandates will include $1.2 billion in global fixed income and $2.1 billion in global high-yield equity, both issued in August.

The merger of Taiwan’s public pension funds has long been discussed. BLF is meant to integrate the research, auditing and management of the LPF and the LIF so as to build a stronger investment team.

BLF now supervises the LPF, LIF, Labor Retirement Fund, Employment Insurance Fund, Overdue Wages Payment Fund and Occupational Incidents Protection Fund.

BLF is responsible for optimal asset allocation and risk control, diversifying investment portfolios in global niche markets and enhancing management efficiency.