Taiwan’s state pension enters private equity

Taiwan’s Bureau of Labor Funds (BLF), which runs NT$3.35 trillion ($103 billion) of public pension money, has made its first allocation to private equity, AsianInvestor can reveal. This is part of its plan to boost its overall offshore and alternative investment exposure.

BLF said it could not provide further details by press time, such as the amount committed or the managers it will allocate to, apart from that they are foreign firms. 

This year the fund will reduce its allocation to bank deposits and put more money into offshore alternatives, noted Huang Chao-Hsi, BLF’s director general, after it had put more into deposits last year amid global market turbulence. It already invests in real estate investment trusts, infrastructure, hedge funds and raw materials.

Overseas markets are more diversified and will provide higher returns than domestic assets over a five- or 10-year horizon, said Huang. “Alternatives will be our focus, as they diversify risks, give our portfolios downside protection and offer higher returns than domestic equities in recent years,” he told AsianInvestor.

The Labor Pension Fund (LPF) and Labor Retirement Fund (LRF) have the largest overseas allocations of the funds under BLF. Between them they have NT$994.47 billion in offshore assets, accounting for 44.6% of their total assets and 73% of BLF’s overall foreign investments. LPF and LRF between them have a 4.9% allocation to overseas alternatives.

BLF aims to increase the proportion of overseas investments in the two funds’ portfolios to 50% and their foreign alternatives allocation to 8% by the end of the year, if performance is satisfactory. 

The instititution has taken time and careful deliberation over its moves into alternatives. Chiu Shean-Bii, consultant and board member of the monitoring committee, said in March at AsianInvestor’s Taiwan conference that the fund only decided to invest in alternatives after more than 500 meetings with asset managers.

Taiwan’s Public Service Pension Fund (PSPF), which runs NT$556.5 billion ($17 billion) in assets, had talked about foreign PE fund investment at its supervisory board meeting at the end of 2014, according to the meeting minutes. But PSPF hasn’t yet decided to invest in the asset class, a spokesperson told AsianInvestor.

BLF only has a small allocation to alternatives domestically; the Labor Insurance Fund had NT$1.78 billion in local real estate as of end-March. International property offers better liquidity and yield, Huang said.

BLF’s move into foreign PE space is part of its strategy to invest in riskier assets to boost returns in the continuing low-interest-rate environment. It targets a five-year rolling average return higher than the two-year fixed-deposit rate plus inflation, which currently equates to a 2%-3% annual return, Chiu said.

There has been a broad trend for institutional investors across Asia to boost their offshore and alternatives exposure in the past couple of years. They include China’s National Council for Social Security Funds, Malaysia's Employees Provident Fund, Korea Investment Corporation, Korea Post, Japan’s Government Pension Investment Fund, Thailand’s Government Pension Fund and various insurance companies.