Taiwan state pension doubles alternatives target

Taiwan’s Bureau of Labor Funds (BLF), a state pension instituted last year to oversee $92 billion in insurance, retirement and pension schemes through four of the country’s pre-existing labour pension and insurance funds, has announced its intention to commit alternatives mandates worth $2.2 billion to three of its funds, acting on a plan to double current alternatives exposure by the end of 2015.

The National Pension Insurance Fund (NPIF), the Labour Insurance Fund (LIF), and the Labour Pension Fund (LPF) will be following the lead of BLF’s older scheme, the Labour Retirement Fund (LRF), which received its first infrastructure and real estate mandates worth $200 million each in April last year.

“By end of Q4 2014, we had increased by 0.6 percent our portfolio allocation to alternatives which amounted to 2.3 percent last April, and we aim to double the current 2.9 percent by the end of this year,” announced BLF’s deputy director general, Li-Ju Liu recently.

The funds’ Foreign Alternative Mandate Investments, which cover real estate and infrastructure, currently stand at TN$80.3 million, or 2.8 percent of BLF’s overall portfolio.

In a question and answer session with Infrastructure Investor, the Bureau’s deputy director general, Liu Li-Ju, explained she was looking to direct alternatives mandates toward both developed and emerging markets.

“The constituents of BLF’s REITs and infrastructure mandates’ benchmarks include developed markets and emerging markets. We set the target return and tracking error as the benchmark return plus 200 basis points (bps) and less than 8 percent respectively, allowing the investment managers to invest in their regions of expertise,” Liu said.

The institution has chosen Australia's AMP Capital and US’s Principal Global Investors to manage its REITs while US asset managers Lazard and Cohen & Steers are the chosen partners for infrastructure investments.

Cohen & Steers and Lazard will only invest in listed infrastructure as the state pension seeks “higher liquidity and transparency,” said Liu.

The investment principal also stated that the Bureau had no plans to invest in private equity in the near future.“Private equity investments always expose investors to less desirable characteristics, i.e. illiquidity and opaque valuation of assets, so the Bureau would prefer other categories of alternatives,” Liu confirmed.

Liu justified the move toward infrastructure and real estate allocations and away from domestic equities by a desire to secure enhanced protection of BLF’s investment portfolio from market volatility.

However, BLF’s position on overseas equity exposure is very different, as it expects riskier assets to benefit from gradual global economy recovery.

“According to the reports of the World Bank and the IMF in January 2015, global growth will benefit from better projections than 2014. Growth will be a factor to push the equity market to perform well. So we are planning to raise our overseas equity exposure over bond exposure ratios. A lot of countries are have been planning to raise benchmark interest rates.

“Moreover, the market participants prefer taking risks for the time being. Therefore it is reasonable to increase the holding of assets bearing more risk. Besides, overseas financial products are more advantageous than domestic products considering the available categories and expected returns,” she said.

BLF published generated returns for 2014 early last month for all seven funds it directly and indirectly manages, stated an average of 4.014 percent. LPF, LRF, LIF, NPIF, the Employment Insurance Fund, the Overdue Wages Payment Fund, the Occupational Incidents Protection Fund delivered 6.38 percent, 7.19 percent, 5.61 percent, 6.03 percent, 1.07 percent, 1.8 percent and 0.89 percent respectively.