Taiwan's $15 billion Bureau of Labour Insurance, a state-owned pension fund, has awarded its first four international investment mandates. This is the culmination of a strategy to go offshore that began in earnest in March, when the BLI held a seminar in Taipei seeking comments from the global investment community. After a series of drafts, the final version of the RFP was issued in June and submissions were made in mid-August.
The mandates are scheduled to be funded by mid-November. The BLI is reportedly nearing a decision on a global custodian, which must be ready to accept the investment monies.
Initially the BLI wanted to issue six mandates worth $100 million each, two from each category of global fixed income, global equities and absolute return strategies.
Market participants say the BLI's own restrictions against the use of derivatives scuppered the absolute-return option, however, which was asking for a US one-year Libor plus 3% return. Some fund managers reportedly tried to offer fund-of-hedge-funds solutions, hoping that the lack of transparency would mask the fact that the underlying funds were using derivatives in ways other than to hedge. Others also submitted ideas that were more up front about the use of derivatives. Some managers speculate that savvier members of the BLI's management team realized the contradiction of wanting such a target while banning derivatives was a no-hoper; in the event, the BLI has dropped the idea.
The other two mandates are more straightforward. First, two $100 million mandates in global fixed income, benchmarked against the Lehman Global Aggregate index but customized to only allow credits of single-A or above, and fully hedged to the US dollar; managers are expected to beat the benchmark by .75% net of fees, with a tracking record of 2%. Second, two $100 million mandates for global equities, benchmarked against the MSCI World Index on an unhedged basis; managers should outperform net of fees by 1.5% within 4% of tracking error.
The final fee structure is not known, but the BLI stipulated a maximum 60 basis point fee when pitching for global equities, and 36bps for global fixed income. The aborted absolute-return basic fee was set at 90bps with a formula for performance fees. The BLI gave the following weightings to managers' pitches: 35% for investment talent, 35% for process, 25% for business and organization and 5% for service.
Alliance Capital and Pimco won the fixed-income mandates, and Alliance Bernstein (the value equities stylist in the Axa Group-owned Alliance Capital family) and Wellington International Management won the equities work. All the mandates are meant for a four-year term, and these may be extended for another four year term; the managers may also negotiate separately to increase fees should they win additional allocations.
The BLI is the third state-owned pension fund to issue international mandates, following the Public Service Pension Fund and Chunghwa Post.
It considered managers with a minimum of $25 billion of assets under management globally, a three-year track record, and compliant with GIPS or AIMR standards of performance measurement.
