Taiwan’s BLF shakes up management in bid to rebuild trust

Taiwan's Bureau of Labor Funds has instituted wide-ranging reforms to its staff structure and contractual terms since Su Yu-ching took over as director general in 2021.

Under Su's leadership, the $201 billion pension fund - seeking to regain public trust following a bribery scandal - has implemented staff rotations across departments, built an internal ESG research team, and revised mandates with external asset managers.

Key reforms include rotating investment managers between roles covering domestic and overseas investments, risk management and finance to broaden perspectives and improve performance.

According to Su, around 20 staff members have undergone rotation or internal transfer this year, providing them with "cross-departmental experience".

Su Yu-ching, BLF

“We gained public attention due to a certain incident. Now two years have passed, and we’ve learnt our lessons,” said Su, BLF’s director general, in an exclusive interview with AsianInvestor.

Su took over managing Taiwan’s largest pension body in March 2021, a time when the pension fund was under harsh public scrutiny in the wake of a bribery scandal.

The public sector veteran was brought out of retirement to help BLF to rebuild its reputation and restore public confidence.

One of the efforts she made with BLF was to implement a rotation policy that ranged through junior staff, middle management and department heads.

For example, a professional in the asset allocation unit, she said, may be more competent if he or she had experience in the investment department, noting that employees’ personal interests and expertise would also be taken into consideration.

Over the past two years, the frequency and number of people rotated was significant. So far in 2023, about 20 staff have been involved in the rotation or internal transfer.

“Our colleagues have given positive feedback on the rotation scheme. We share the perspective that it is beneficial to their personal development as well as increasing the efficiency of the whole institution,” Su said. “They’ve grown faster.”

Before retirement, Su was president and chief executive officer of the Taipei Exchange. As an experienced regulator, she also held various important positions at the Financial Supervisory Commission (FSC).

“Maybe the impact of the internal adjustment won’t manifest itself in a short period of time … But I believe when our staff take on more senior roles in the future, they will know how helpful it will be, which is to have a group of professionals who have cross-departmental experience,” Su said.

ESG JOURNEY

BLF, which manages eight pension funds, is the largest pension body in Taiwan. As of the end of May, BLF managed a total of NT$6.26 trillion ($201.8 billion), according to the latest data released on July 3.

As a large public asset owner, BLF is also taking ESG and responsible investing seriously.

To better align with global trends and regulation development in ESG and responsible investment, BLF set up an internal team to study the key developments around the world and discuss them with senior directors regularly.

BLF also encouraged members to attend external industry seminars and invite external industry experts, government officials, and regulators for experience sharing.

For example, Taiwan’s Climate Change Response Act has been in effect earlier this year, marking its commitment to net-zero carbon emissions by 2050, and the establishment of a carbon fee system.

BLF has invited government officials to brief investment managers to keep them informed of how the new law would affect BLF’s investees.

As of now, the internal ESG research responsibilities are held by BLF staff concurrently. Su said the pension fund is also open to exploring the possibility of setting up a high-level designated ESG partner to coordinate relevant work within BLF.

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Separately, following its in-house standards on the domestic equity market, BLF has started to require external managers to invest in companies that have sustainability reports available.

INCREASE ACCOUNTABILITY

To reinforce external fund managers’ accountability and incentivise them to be more diligent and prudent, Su also initiated a review of BLF’s various mandates and decided to amend these contracts where necessary, especially on compensation mechanisms.

The pension fund has been involved in certain lawsuits with external fund management companies and managers related to their misconduct.

“We hope that by revising the investment contracts, the fund managers can better fulfil their duties and invest in the interests of the pension fund,” Su said.

For example, BLF has stipulated that if a fund manager breaches provisions in a contract, the asset management company the person works for must bear the same liability for compensation, shifting the burden of proof of misconduct from BLF to the fund manager.

In the case of a lawsuit, a fund manager must be able to prove there had been no negligence, rather than previously when BLF was the party to provide that proof.