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  • Writer's pictureNelson Huang

Organically growing Taiwan pensions open arms for offshore managers

In recent years, with improving soundness and comprehensiveness of the pension system, Taiwan pension funds have become well known across institutional investors and asset managers. In this article, we consolidate overall size and asset allocation for your better understanding of Taiwan pension funds’ overview and landscape.

Overview of Pension Fund Offshore Mandate Market in Taiwan

In Taiwan, there are two major institutions managing pension funds: Bureau of Labor Funds (BLF) and Public Service Pension Fund (PSPF). BLF is responsible for overall utilization and planning of various funds, in which with new offshore mandate opportunities are: Labor Pension Fund (LPF), the Labor Retirement Fund (LRF), the Labor Insurance Fund (LIF), and the National Pension Insurance Fund (NPIF). PSPF also launches offshore mandates from time to time, but not in regular manner as BLF.

Exhibit 1. Total Asset by Funds (in $USD Million, 2016-2021/09)

Source: BLF, PSPF. Consolidated by NIC

LPF is the largest single pension fund in Taiwan and contributed by current pension system with size growing up significantly and steadily (CAGR above 13% since 2016). On the other hand, the growth rates of LRF, LIF, NPIF and PSPF are relatively unstable. (CAGR range from 3% to 13% since 2016). Therefore, we take LPF as representative fund for further analysis.

Taiwan pension’s mandate pipeline goes steadily with assets growth in healthy manner

Exhibit 2. Allocation by Investment Vehicle (LPF Account, 2016-2021/09)

Source: BLF, Consolidated by NIC

Since 2016, the proportion of the fund outsourced to overseas asset manager has been stable around 40+%, with the average asset growth $4.3billion/year. Regardless of investment perfomance and top-on funding to outperforming existing managers, LPF generally announces one to two offshore mandates through public tender every year with mandate size ranged from $1.2Bn to $2.0Bn.

On the contrary, timeline for new offshore mandate released by LRF, LIF NPIF and PSPF is relatively unstable. But in general, except for PSPF, one of rests would be bundled with LPF for same type of new mandate with size ranged from $ 240m to 1.2b.

Asset classes allocations exhibit similarly looks over years

Exhibit 3. Offshore Mandate Allocation by Asset Class (LPF Account, 2016-2021/09)

Source: BLF, Consolidated by NIC

*Alternative: Listed Real Estate Equity/Listed Infrastructure Equity

Considering global equity with more growth opportunities and diversity, LPF allocates over 50% to equities in outsourcing asset, followed by fixed income (24%), alternative (13%) and multi-asset (10%), and the positioning has been maintained for years. We don’t expect material change in the asset allocation in the future.

BLF deploys balanced allocation across investment types

Exhibit 4. Offshore Mandate Allocation by Investment Style (LPF Account, 2016-2021/09)

Source: BLF, Consolidated by NIC

BLF started applying absolute return strategy into its portfolios since 2016, and the scale of absolute return strategies increased significantly in recent 5 years. With the stock market reaching record high and the bond yield still far below historical average level, we expect BLF will continuously consider absolute return/all-weather strategies going forward.

NIC, as the frontier of Taiwan market researchers, aware mega trend in sensitively manner. We would discuss more about potential opportunity in Taiwan pension market in next article. If you have interest to know more news and advanced insights, just reach us!

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