Eastern Appetite for Alternatives Balloons

A multi-billion dollar Taiwanese pension fund is ramping up its allocation to hedge funds.

(May 28, 2014) — The NT$2.5 trillion ($83.3 billion) Taiwanese Labor pension fund is to more than triple its allocation to alternative assets, its governing body has announced.

Director General Huang Chaohsi of the country’s Bureau of Labor Funds told Reuters that the pension’s investment team intended to put an additional NT$110 billion into alternative investments in 2015, up from its current NT$50 billion held in this sector.

Huang said these alternatives could include real estate, hedge funds, private equity, commodities, and energy products.

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

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Taiwan’s Labor Fund has generated a 24.8% return from the $1.25 billion invested in alternatives since 2012, Reuters reported. The fund is set to allocate 8% of its total funds to alternatives in 2015. This year, it has around 6% in the sector, up from 4.2% in 2013, Huang said.

Hedge funds based in Asia have generally outperformed their international rivals in recent years, data showed in January. These funds (excluding Japan) gained 15.85% in 2013, data monitor Eurekahedge said in its end-of-year report. This outstripped performance by funds based in the larger hubs of North America and Europe.

Investors allocated $11 billion to these funds, the report showed—the largest amount for six years.

In January 2013, asset managers in Asia believed pension funds would be the most profitable segment of their institutional business in 2015, followed by central banks and quasi-government agencies, according to a poll by Cerulli Associates.

The Taiwanese fund retains a substantial allocation to traditional asset classes, however. It has set a 25% target for its domestic equity portfolio, amounting to almost $20 billion. Huang said the fund would outsource NT$42 billion of mandates in local stocks to asset managers in the second half of 2014, in addition to the NT$42 billion awarded in the first six months of this year.

The fund receives a regular income from its participants as employers are required by law to contribute 6% of members’ salaries to the fund. This equates to $6.6 billion in fresh capital each year.

Related content: Pension Funds, Perk Up: Asia Wants You & Hedge Funds Off to Slowest Start Since 2008

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