Taiwan pension funds overseen by the Bureau of Labor Funds (BLF) suffered the worst investment loss on record last year as markets were battered by inflation and rate hikes, the war in Ukraine, and China’s Covid-19 policy.
The eight pension and annuity funds swung to a combined investment loss of NT$382.1 billion (US$12.85 billion) and a return of minus 6.68%, from a NT$491.5 billion gain and 9.67% return in 2021, BLF says in a statement on February 2.
Although the pension supervisor expects the grim economic environment and geopolitical issues to continue weighing on corporate earnings, it believes the rate hike cycle is coming to an end and that market sentiment will improve.
The BLF joins a growing number of institutions reporting sharp losses in 2022.
Norway’s sovereign wealth fund Norges Bank Investment Management also reported record losses last week, and Hong Kong’s Exchange Fund, the city’s foreign reserves for defending the value of the local dollar, posted its biggest loss since 2008.
BLF Deputy Director General Liu Li-ju points to the 22.4% plunge in the MSCI Emerging Markets Index and the 19.83% decline in Taiwan’s benchmark stock index to illustrate how its funds were roiled by macro factors such as China’s Covid-19 lockdowns.
“With the volatile market condition [in 2022], BLF continued to diversify its allocation across domestic equites, overseas equities, bonds and alternatives for a long-term investment purpose,” she says in the statement.
“Although the bleak economic environment and geopolitical uncertainties will continue to put corporate earnings under pressure, investment sentiment is expected to become stabilised as the market has been at the end of the interest rate hike cycle,” she adds.
The US Federal Reserve raised interest rates for the eighth straight time last week to rein in inflation but the quarter-point hike was the smallest since it kicked off the tightening cycle in March 2022 with the same increase. Fed Chairman Jerome Powell said he believes that the “disinflationary process has started”.
The Labor Retirement Fund, Taiwan’s largest defined-benefit plan, was the worst performer among the BLF funds last year with a minus 8.3% return, followed by the Labor Insurance Fund which returned minus 7.5%.
In spite of the 2022 losses, Liu says the eight funds were able to deliver “stable” long-term performance with an average annualised return of 4.05% over the past ten years.
The funds’ had NT$5.99 trillion of assets under management as of December 2022, up from NT$5.58 trillion a year ago.
