In response to Glasgow Climate Pact reached at COP26 in 2021, Bureau of Labor Funds (BLF) just announced its plan to launch “Global Climate Change Equity” offshore mandate in 1Q2022 with total amount of investment $US 2.3 billion, tracking Paris Aligned climate related indexes. Back to November 2021, BLF just completed manager selection process of domestic investment mandate, with total mandate size of $1.73 billion, aims to invest in companies publish comprehensive corporate social responsibility (CSR) report. The largest pension fund in Taiwan not only leads the wave of sustainable investing among Asian institutional investors, but also establishes a model of ESG investing for local investors.
Diversified Asset Allocation, Emphasis more on Sustainable Investing
Exhibit 1. Announced Offshore Mandate Type Since 2016
Source: BLF & PSPF, Consolidated by NIC
BLF has been one of the pioneers among Asia institutional investors on ESG/sustainable investing. In 2017, BLF announced its first Global ESG equity (passive) mandate with total fund Size $US 2.2 billion. In 2020, it also announced SRI global fixed income (enhanced) mandate with total fund size $US 2.3 billion, PSPF also follows the trend and announces ESG index Equity mandate in 2021. We believe there will be more thematic mandates with ESG/sustainability concepts announced in the future.
Follow the Trend, But Also Look for Soundness
Exhibit2. Offshore Mandate Allocation by Region (LPF Account, 2016-2021/09)
Source: BLF & PSPF, Consolidated by NIC
While BLF proactively follow the mega trend of thematic investment, we could see BLF seeks for soundness by heavily allocating over 85% of its asset to global equity/fixed income/alternative. For EM allocation, since Taiwan also plays important role in EM market, BLF (also PSPF) uses onshore equity direct investment/mandates as complement for its EM portfolio. Another reason is that there’s higher probability that performance of its EM portfolios deviates from target return during five-year contract tenure. Nevertheless, BLF had launched Asia equity mandate in 2016, and EM dynamic multi-factor equity mandate in 2019. According to this pattern we do believe that EM/Asia will highly be possible the next theme in the coming years (with ESG concepts) though it will slightly customize the type in accordance with the market sentiment.
In our last insight “ Organically growing Taiwan pensions open arms for offshore managers“ , we provide different analysis angles of Taiwan pension mandate direction, through asset classes and investment types. In conclusion with this article, we think absolute return/ESG/sustainable/EM/Asia are possible themes would couple with in fixed income/equities/multi-asset mandates in the future.
NIC, with solid experience and profound relationship in local, looks forward to collaborating with best-in-class managers to create mutual benefit with our clients. Do not hesitate to reach us if you have competitive and unique solutions!