Taiwan's Bureau of Labor Funds, launched in February to consolidate oversight of six public funds with combined assets of US$84 billion, is looking to alternatives strategies as key drivers in the bureau's efforts to diversify its investment portfolio.
But BLF executives say they will maintain a cautious approach in stepping onto that alternatives path, with high hurdles for transparency and liquidity ruling out a full embrace of the endowment model anytime soon.
Hedge funds and private equity might be considered in the long run, but more liquid, transparent assets will be considered first, said Chao-Hsi Huang, director-general of the BLF, in a recent interview. With that in mind, “we chose to make our initial investments in real estate investment trusts and (listed) infrastructure,” said Mr. Huang.
The push into alternatives was started in 2012 by the BLF's predecessor administrative arms. In March of that year, the Labor Pension Fund, the “new” defined contribution plan launched by the government in 2005, awarded US$1.55 billion in global REIT mandates to three overseas managers. As of Sept. 30, the value of those mandates had grown to US$1.76 billion, with Atlanta-based Invesco Ltd. managing $682.5 million; New York-based Cohen & Steers Inc., $616.8 million; and London-based EII Capital Management Inc., $465.4 million.
Smaller global REIT and global infrastructure mandates have been awarded more recently.
As previously reported, those asset segments will remain the focus of RFPs due to be issued early next year, that should lift the weight of alternatives in the BLF's NT$2.572 trillion (US$84.3 billion) investment portfolio to 6% by the end of 2015 from less than 2.5% in mid-2014, BLF executives said.
Among the BLF's three biggest funds, the Labor Pension Fund should see alternatives accounting for 8% of its NT$1.241 trillion investment portfolio by the end of next year from 4.4% at the close of 2013, executives said. The corresponding figures for the NT$619 billion Labor Retirement Fund, a defined benefit plan, will be 4%, up from 0.79%, while the NT$596.4 billion Labor Insurance Fund will jump to 5% from 0.64%.
Mr. Huang said amid growing market uncertainty, the BLF increasingly is looking to share information with pension plans in other countries in hopes of building better asset allocations. He also cited a 2012 report by the bureau's investment consultant, Towers Watson, which showed the average allocation to alternatives by a sampling of seven sophisticated overseas pension plans rising to 18% by 2012 from 5% in 1995, as contributing to the BLF's focus on alternatives.
“The BLF is constantly looking for ways to diversify our assets by investment in different asset categories, especially alternatives,” said Mr. Huang.
“For now, we invest in stocks, bonds, REITs and infrastructure,” with a small — US$20 million — allocation to hedge funds of funds run by the BLF's in-house team as “a kind of experiment for us to check out that market and understand how it works,” said Mr. Huang.