Taiwan’s PSPF issues $930m equity RFP

Jul 4, 2016

The $17.5 billion Public Service Pension Fund has invited asset managers to bid for six domestic equity mandates, its first move to outsource investments since late 2014.

Taiwan’s NT$566 billion ($17.5 billion) Public Service Pension Fund has invited fund managers to bid to run six domestic equity portfolios totalling NT$30 billion by July 20.

The request for proposal for the six NT$5 billion mandates is the first that PSPF has issued since 2014. It awarded no portfolios at all during 2015, because it felt its externally run investments had been sufficient, a spokeswoman told AsianInvestor.

The fund manages domestic fixed income in-house, including foreign currency-dominated bonds issued in Taiwan. It is considering whether to issue more international mandates this year, the spokeswoman said.

Taiwan’s NT$3.4 trillion Bureau of Labor Funds made its first allocation to foreign private equity in the first quarter of 2016, but PSPF has not yet invested in this asset class, as revealed by AsianInvestor.

PSPF had issued two rounds of mandates each year from 2011 to 2014 (one domestic and one international), except in 2011, when both rounds were for foreign investments.

The new domestic equity portfolios will be for five-year terms and will have a target net return of 100 basis points above its benchmark, the local stock index. PSPF will conduct quarterly reviews starting a year after the mandates are awarded and will only accept up to 6% ex-post tracking error.

Asset managers will be able to invest in listed and over-the-counter Taiwan equities, exchange-traded funds and approved IPO company stocks. Use of derivatives such as index futures will be allowed for hedging purposes. Idle cash can be allocated to government bonds, short-term paper and bank deposits.

Applicants must have been around for three years and manage at least NT$10 billion of domestic mutual funds as of end-June. The domestic equity funds must have three-year average return beating peers’ performance.

A manager can also qualify if one of its actively managed or index funds has run at least NT$1.5 billion in assets on a monthly basis for the past three years, with an average three-year return higher than the Taiex and annualised tracking error of below 12%.

As of the end of May, PSPF outsourced 35% of its NT$566 billion to external managers (9% for domestic portfolios, 26% for global). For the assets managed in-house, 18% of its allocation was in equity and beneficiary certificates (15% domestic and 3% international) and 17% in fixed income (9% domestic and 7% international). The remaining 30% was in bank deposits, treasury bills and commercial paper.

The last foreign mandates issued by PSPF were eight portfolios totalling $1.6 billion for global asset allocations in 2014: four for low-volatility and high-dividend income equity and four for real estate equity and infrastructure equity. The chosen managers were Allianz Global Investors, BlackRock, Cohen & Steers, Cornerstone, Deutsche Asset Management and UBS Asset Management.

Apart from the benchmark and tenure, the requirements for the latest domestic equity mandates are similar to those for the six domestic equity mandates (also totalling NT$30 billion) issued in November 2014.

PSPF uses the following managers for foreign mandates: Allianz GI, Amundi, Ashmore, BlackRock, BlueBay, Cohen & Steers, Cornerstone, Deutsche AM, Fidelity, Invesco, Schroders, Stone Harbor, UBS AM and Vontobel.

The following are the pension fund's domestic mandate managers: Allianz Global Investors, Cathay Securities Investment Trust, Fubon Asset Management, HSBC Global Asset Management, Prudential Financial Securities Investment Trust Enterprise, Schroders and Uni-President Asset Management.