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Taiwan’s PSPF can hire alternatives managers for 12 years with rule shift

By Asia Asset Management  
Jul 8, 2019

Taiwan’s Public Service Pension Fund (PSPF), a mandatory defined-benefit scheme for civil servants, teachers and military personnel, will be able to more than double the appointment period for external managers of its alternative or non-mainstream investments following a rule change.

Examination Yuan, the government department that supervises PSPF, has introduced a new regulation allowing the pension fund to increase the term of appointment of the alternatives managers from the current five years to as long as 12 years.

This will help PSPF manage its asset allocation in a more flexible way in order to improve its investment performance and the stability of its income flows, the Examination Yuan says in a statement on July 2.

The department did not say when the new rule will take effect, and it’s unclear if it will happen this year.

“It could still take some time. We are currently under internal discussion,” a spokesperson for PSPF tells Asia Asset Management (AAM).

According to Della Lin, a senior analyst at US investment consultancy Cerulli Associates, extending the mandate period gives alternative asset managers greater flexibility in managing investments.

“It also widens the range of strategies [PSPF] can have exposure to, allowing it to take up riskier asset classes, including private equity and private debt, to achieve higher returns. Such asset classes tend to require a long investment period before positive returns are observed,” Ms. Lin tells AAM.

PSPF ventured into alternatives four years ago but has not made any new investments since. It awarded a US$150 million listed infrastructure mandate to Cohen & Steers and DWS in March 2015, and hired Cohen & Steers for a $75 million securitised real estate mandate three months later.

Alternatives only account for a tiny share of the pension fund’s investment portfolio. According to latest available data from PSPF, 38% of its portfolio was outsourced to external managers as at May 31, 2019, but there is no breakdown by asset class.

The majority of its assets are managed internally, with around 21% in domestic bonds and short-term debentures, 12% in domestic equity index funds, and almost 12% in foreign bonds.

The pension fund suffered a loss on its investments last year, with a return of minus 1.14%, the worst since 2015.

It recovered in the first few months of 2019, with a return of 5.34% between January and May.

PSPF, which was established in 1996, had NT$582 billion ($18.7 billion) of total assets as of May 2019.