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Taiwan's BLF pauses outsourcing of new investment mandates

October 3, 2019

Taiwan’s pensions supervisor is suspending the outsourcing of new investment mandates next year as it undertakes a review of its portfolio.

The Bureau of Labor Funds (BLF) outsources new mandates every year, but the pace of its asset diversification may have been “too fast” for some managers, Deputy Director General Li-Ju Liu said last week at a conference organised by Asia Asset Management.

As such, the BLF is putting the exercise on hold for next year in order to “have a thorough review on the diversity of its portfolio”, and to discuss strategies that it lacks with managers and investment consultants, Ms. Liu said at the conference in Taipei on September 24.

“We’re putting more focus on asset rebalancing this year, while we’re also keeping an eye on innovative products in the market,” she said.

The BLF oversees six of Taiwan’s pension funds for private sector workers, including the largest, the Labor Pension fund.

The share of assets managed externally varies among the funds. The Labor Pension Fund, for instance, has outsourced around 43% of its NT$2.4 trillion (US$77.2 billion) assets to foreign managers.

Ms. Liu said external managers pitching for mandates should tell the BLF what investment capabilities it’s short of instead of talking about the strategies they are good at.

This June, the BLF postponed a $1.5 billion multi-factor foreign bond mandate it had sought bids for three months earlier because it couldn’t find an appropriate benchmark for the investment.

Ms. Liu said environmental, social and governance (ESG) investing is a key area that the BLF will look into.

“From a performance perspective, it’s very difficult to predict whether ESG investing can generate decent returns in the long run, but [the] ESG principle itself is a good idea and is worthwhile for further promotion,” she said.

The BLF ventured into ESG investing in 2017 when it granted a $2.4 billion global ESG equities mandate to BlackRock, Northern Trust, State Street Global Advisors, and Deutsche Bank.

It followed up last year with a NT$42 billion domestic ESG equities mandate awarded to seven domestic managers, including Cathay Securities Investment Trust and Capital Securities Investment Trust.

“Our ESG mandates are mainly passive strategies. As ESG investing should not be limited to a single asset class or strategy, we will be looking for different types of [ESG] approaches that can bring long-term stable returns for our funds,” Ms. Liu said.

The six funds overseen by the BLF had NT$4.5 trillion of total assets under management at the end of July 2019.