Taiwan’s Public Service Pension Fund’s (PSPF) investment income plunged 87.56% year-on-year in the nine months to September, dragged down by the coronavirus crisis and a strong local dollar.
PSPF eked out an investment gain of 0.94% or NT$5.51 billion (US$192.8 million) in January through September, sharply down from NT$44.3 billion in the same period of 2019, the fund says in a statement on November 5.
Some 54% or NT$325.1 billion of PSPF’s investable assets is managed internally. Investment gain from these assets dropped to NT$7.42 billion from NT$13.03 billion in January-September 2019.
The 46% of externally managed assets lost NT$1.91 billion compared to a NT$31.3 billion gain last year. These assets total NT$278.5 billion and almost 70% is denominated in US dollars, so a weaker greenback pulls down the value.
“The loss of its outsourced investments was primarily due to the Covid-19 triggered market woes and local currency appreciation,” the PSPF says.
The New Taiwan dollar has gained 4.6% against the greenback as of November 6 as the strength of the domestic economy attracts foreign investments.
For example, official figures show that Taiwan’s renewable energy industry drew around $6.32 billion of foreign direct investments in the nine months to September, or over 70% of the amount that went into the industry in all of 2019.
Taiwan’s statistics department in August forecast the island’s economy to grow around 1.56% this year and said it was one of the most stable in the region.
The PSPF and most other Asian pension funds “are inevitably facing a setback in investment return” because of rising market volatility, according to a Taiwan-based fund manager.
He expects the PSPF and other Taiwanese asset owners to become more defensive with rebalancing their assets.
“It will likely allocate more to risk-free bonds or assets with stable cash flow, such as real estate investment trusts and infrastructure debt,” he tells Asia Asset Management, speaking on condition of anonymity.
According to Huang Jong-tsun, president of the Examination Yuan, which oversees the employment and management of Taiwan’s civil servants and supervises the PSPF, the outlook for the global financial market “remains highly uncertain as the pandemic keeps haunting the market”.
“With the recurring economic lockdown in some countries, the PSPF will keep a close eye on the related risks,” he says in the statement, adding that the fund “will take security and profitability into account for its investment processes and work hard to beef up its investment returns”.
The PSPF, a mandatory defined-benefit scheme for civil servants, teachers and military personnel, had around NT$1.54 trillion of total assets as of September 2020. Some 40% of the assets, or NT$603.6 billion, is investable.