Taiwan’s biggest pension to add alternatives

The government-controlled Labor Funds, with T$2.5 trillion ($83.3 billion) in assets, will put an additional T$110 billion into alternative investments in 2015 from T$50 billion now, director general Huang Chao-hsi of the Bureau of Labor Funds said.

“Alternative investment is the way to go for our future strategy,” Huang told sister news service Reuters. “We have done extensive research, which showed returns generated by alternatives are much better than equities.”

Alternative investments include stocks, REITS, hedge funds, private equity funds, commodities and energy products, he said.

The fund has posted an average annual return of 3 percent over a five-year period from 2009, while the California Public Employees’ Retirement System had a 1 percent return for the same period from 2008, the director general said, adding that it expects a 4 percent return this year.

The U.S. pension fund is the industry’s role model, Huang said, noting that the 2008 financial crisis and a global market rout in 2011 however dragged down previously double-digit average annual returns. Taiwan’s Labor Fund has generated a 24.8 percent return out of the $1.25 billion invested in alternatives since 2012. It is planning to allocate 8 percent of funds to alternatives in 2015, more than 6 percent this year and 4.2 percent in 2013, he said.

The fast-growing pension fund, which has more than T$200 billion of fresh money coming in each year as employers are required by law to set aside 6 percent of their employees’ salaries on a monthly basis, is attracting global fund managers such as PIMCO and State Street to compete for mandates.

The fund also will look at investing in Taiwan stocks. Some 25 percent, or T$600 billion ($19.94 billion), of funds are invested in the domestic stock market, Huang said. Taiwan’s share market has staged a 5 percent rally this year to a three-year closing high compared with the Dow Jones Industrial Average, which has held nearly flat at record levels.

Huang said the fund will outsource T$42 billion of mandates in local stocks to asset managers in the second half of 2014, in addition to the T$42 billion awarded in the first six months of this year.

He declined to identify which assets managers would secure the mandates. However, PIMCO, Blackrock Inc and Loomis Sayles are among the fund companies that have delivered “satisfactory” returns for the fund, he added.

Faith Hung is deputy bureau chief for Reuters in Taipei. Additional reporting by Roger Tung.