5 Things Should Know In Developing Taiwan. 2nd: Pension Funds’ Organic Growth Creates Opportunities.
Updated: Sep 8, 2021
Plan to broaden your business in Taiwan Institution market? NIC, the experienced consultant in the industry, shares the critical 5 things you should know from the previous insight and the coming 3 ones.
Previous: 1st: Vast OPPORTUNITIES for Fund biz of Retail and Lifers
Today, let’s talk about Taiwan pension system and opportunities. The Labor Pension System refers to the system under which an employer is legally obligated to provide retirement pensions to a worker. In Taiwan, there are currently two systems in place—an old pension system and a new pension system. The old system is a scheme outlined in the Labor Standards Act. while the new pension system effective from Jul 2005 is outlined in the Labor Pension Act. (the New Act) Taiwan pension reform developed positively. Under the new Act., all employers are required to deposit 6% (or more) of a worker's monthly wages into an individual labor pension account managed by the Bureau of Labor Insurance (BLF), with ownership going to the worker. BLF, under the establishment of the Ministry of Labor, is the division responsible for overall planning and utilization of various labor funds, with AUM of NT$ 4,322.7 billion, relevant to US$141 billion, as of January 2019. On the government front, Public Service Pension Fund Management Board (PSPFMB) is in charge of the supervision and management of PSPF, where the fund participants comprise from the government employees, including civil servants, education workers and military personnel.
Bureau of Labor Funds (“BLF”) is a well-known pension organization in Asia
Since its establishment in 2014, BLF replaced the Labor Pension Fund Supervisory Committee as investment manager of the island state’s labor funds, which include the Labor Pension Fund (the New Fund), the Labor Retirement Fund (the Old Fund) and the Labor Insurance Fund (LIF) and the other labor funds. Based on the merger synergies and incorporation with its investment team, BLF, strengthening the application of relevant resources, is responsible for overall planning and utilization of the labor funds. Supervised by Director General, Deputy Director Generals and Chief Secretary, the structure of BLF is well-organized. There are 5 business units and 4 auxiliary units separately. Both the domestic investment division and foreign investment divisions place in-house investment team and fixed income as well as equity mandate sections. There are sufficient personnel across different business units and clear organization in the investment teams. The utilized capitals of BLF grow steadily over the years. Figure 1 blow depicts its breakdown of utilized capitals, indicating the aggregate volume of these labor funds is increasing with the average annual growth rate of 10.45%.
Public Service Pension Fund (“PSPF) is a historic pension organization in Taiwan
On the contrary, the overall assets of PSPF appears remain constant. PSPF has more in-house investment in comparison to the outsourced discretionary management. Over the years, in-house investment occupied 70-80% of the total assets. Since 2001, PSPF started to enter into the batches of domestic discretionary mandate, while it’s just since Dec 2003, PSPF opened the first open tender of offshore discretionary mandate. As of 2018 end, the total discretionary amount was equivalent to US$7,279 million. According to PSPF statistics, in the past five years, the overall discretionary investment size doesn’t have impressive growth as that of BLF, but over the years, the overseas discretionary investment steadily accounts for two-third of the total discretionary volume including onshore and offshore managers. In the nearest 2018, the offshore discretionary management rewards its historical-high at 75% of the overall discretionary assets. Notwithstanding the effect that PSPF continues to improve its internal efficiency, PSPF is not as well-organized as BLF, and has relevant simple organizational structure in terms of the division and staff allotment, making its investment development fall behind that of BLF all the time.
Outline of open tender projects of BLF and PSPF
BLF is historically active in external outsourcing, including Equities, Fixed Income, Multi-assets and global REITs funds. BLF is no doubt the largest institutional pension in Taiwan followed by PSPF. In the recent time, BLF continues to declare their interest of onboarding new managers on its selective list, for the purpose of encouraging new partners and innovative strategies. Since the tender amount of BLF is usually impressive, up to US$1 billion for each selective manager, the mandate rival is always competitive, making very few applicants happy when the tender result is published. Averagely less than 10% of the applicants will be selected in each open tender.
Pension funds are anther competitive territory in the institutional mandate for the offshore participants to enter into Taiwan market. The tender procedures are standardized; information is publicly disclosed however a local service agent is required compliant current standard. If you are also interested in understanding the practice of tender application, welcome to contact us!