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Investment strategy and prospects of the Labor Funds
Huang, Chao-Hsi
Director-General,
Bureau of Labor Funds, Ministry of Labor
Global Association of Risk Professionals
DEC 23, 2014
The views expressed in the following material are the
author’s and do not necessarily represent the views of
the Global Association of Risk Professionals (GARP),
its Membership or its Management.
Outline
國內委託經營之回顧與現況
Ⅰ Preface
Ⅲ
委託經營受託機構之遴選機制Ⅳ
Ⅴ
Organization Structure and Operation
MechanismsⅡ
Ⅵ
Utilization Strategies
Overall Utilization Performance
Future Prospects
Conclusion
3
Ⅰ . Preface
On February 17, 2014, the Council of Labor Affairs was upgraded to become the
Ministry of Labor (MOL), marking a milestone in the history of labor
administration in our country.
Meanwhile, the Bureau of Labor Funds (BLF) was restructured from the former
Labor Pension Fund Supervisory Committee to take charge of the overall
investment management for various labor funds and also commissioned by the
Ministry of Health and Welfare (MOHW) to utilize the National Pension Fund. It
shows not only that the government places high importance on enhancing
economic security for the labor’s retirement, but also it means the BLF shoulders
the great responsibility for wide expectation from the labor.
Since established, the BLF has seamlessly integrated all organizational
mechanisms such as the funds’ takeover, personnel allocation, regulation making
and revising, and office relocation.
Thus far, notwithstanding facing constant fluctuation in the global financial
markets, the investment performance of the funds keeps a relatively stable growth
through BLF’s diversified portfolio arrangement.
4
Ⅰ
Sharing
Resources
Promoting the
Efficiency
of the Organization
Integrating
Information and Risk
Control System
Centralizing
Professional
Talents
Bureau of
Labor Funds
Labor Pension Fund Supervisory Committee
Labor
Pension Fund
Labor
Retirement Fund
Bureau of Labor Insurance
Labor
Insurance FundEmployment
Insurance Fund
Occupation
Incidents
Protection Fund
Arrear Wage
Payment Fund
Ministry of
Health and Welfare
National
Pension Fund
5
Ⅱ Organization Structure and Operation
Mechanisms
6
Department of
Labor Insurance
& Department of
Employment Welfare
and Retirement, MOL(Overseeing the
implementation)
Labor Funds
Supervisory
Committee, MOL(Supervision)
Ministry of Labor(Establishing policies
and regulations)
Ⅱ-1. Tripartite Framework of Collection-
Payment, Utilization and Supervision
Funds' Collection & Payment and Accumulation Status
Annual investment performance
Investment
Management
Collection &
Payment,
Custody 7
Ⅱ-2. Functional Organization Structure
Bu
rea
u o
f L
ab
or
Insu
ran
ce
La
bo
r Pen
sion
Fu
nd
Su
perv
isory
Co
mm
ittee
Planning and
Audit Division
Domestic
Investment
Division
Foreign
Investment
Division
Finance
Management
Division
Risk
Management
Division
Personnel
Office
Accounting
OfficeSecretariat
Civil Service
Ethics Office
Bureau of Labor Funds
Director-general
Deputy Director-
general
Chief Secretary
8
Ⅱ-3.Strenghten Strategy-Making Mechanism
Investment Strategy Committee Meeting
Duties
Draw up or adjust the annual asset allocation and investment plan
Plan or adjust the investment strategy on equity, bond, and beneficiary certificates…
Review plans on mandate projects, annual performance, fund raising or decreasing,
and contract extension or termination
Loans to governments at all levels and state-run enterprises
Review real estate investment, newly added investment items and major issues
Duties
Risk Control (Risk Management
Division)
Audit Control(Planning and
Audit Division)
Investment executionand Reviewing
(Domestic investment Div, Foreign
Investment Div, Finance Management Div)
9
Ⅱ- 4. Execute External and Internal Auditing
Mandated Institutes
Custodian Bank
Bank of Taiwan(For the Labor Retirement Fund)
Domestic Investment Division
Foreign Investment Division
Finance Management Division
Risk Management Division
Accounting Office
Au
dit G
uid
elin
es
for th
e L
ab
or F
un
ds
Execu
te b
y P
rofe
ssio
nal A
ud
itors
Dra
w U
p A
nn
ua
l Au
dit P
lan
1
0
Regular
Project
Documentary
On-Site
External Auditing
Internal Auditing
Ⅲ Utilization Strategies
11
Investment
Research
Resource
International
Supervisory
Consultant
Share
Integrate
&
Information
Systems
Ⅲ-1. Integrate & Share Resources
12
Impact Analysis
and
Countermeasure
Construction
Severe Fluctuation
in Risk ValuesSharp Decrease
On Investment Returns
Data
Collection
Economic and
Financial
Information
Reviewing
Immediate
reaction to
negative
information
against Funds’
management
Ⅲ-2. Strengthen Risk Control
1.Strengthen risk consciousness
13
Risk Budgeting
Risk Tolerance
Risk ValueAnalysis
Risk Surveillance
Surveillance onInvestmentprocedures Monitoring on
Risk Limits
Risk Controland
ManagementTeam
Risk AssessmentMonthly
Stress Test
QuarterlyBacktracking
Test
RegularRiskReport
1. Daily Risk Calculation
2. Monthly Review on Five
Major Risks
1. Weekly Review on
Price Risk and
Liquidity Risk for
Mandate Investments
2. Monthly Review on
Liquidity for Individual
Stocks
Ⅲ-2. Strengthen Risk Control (con’t)
2.Risk Management Mechanism
14
Low down
Fee rate of
the Foreign
Custodian Bank
Low down
commission
rate of the
brokers
Increase
revenue of
the domestic
bonds
Ⅲ-3.Use Advantage of Economies of Scale
15
Assets Under Mangement
1,714
2,641
579
2,369
0
500
1,000
1,500
2,000
2,500
3,000
Date
NT$ 1 billion
Labor Pension Funds
Labor Funds
Jul 2, 2007 Feb 16 ,2014 Nov 30, 2014
Ⅲ-4、Extend Scope of Diversified Investment
2Catch International
management trend
Establish global
Investment strategy3
Allocate Mandate and
In-house investment1
1. Mandate types
2. Selection and supervision
3. Global investment
management data
Select international consultancy to
assist in global diversified investment
16
Ⅳ Overall Utilization Status
17
2,3772,410
2,4232,452
2,482
2,5142,547
2,5722,598
2,641
2,200
2,250
2,300
2,350
2,400
2,450
2,500
2,550
2,600
2,650
2,700
Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Ⅳ-1. Rapid Growth on Assets under Management
The AUM of labor funds grows rapidly up to NT$ 2 trillion and 640
billion at the end of Nov 2014. Though facing constant fluctuation in the
global financial markets, the Labor Funds still earn return steadily and
grow continuously with prudent asset allocation and risk control
mechanism.
18
NT$1 Billion
Ⅳ-2. Moderate Asset Allocation
Assets AllocationAmount
(1 billion)Percentage
Domestic
Bank Deposits 488 18.5%
Bonds 414 15.7%
Equities 642 24.3%
Alternatives 2 0.1%
Others
(included insured
loan、agricultural
insurance fund loan)
35 1.3%
Subtotal 1,581 59.9%
Foreign
Bonds 499 18.9%
Equities 480 18.2%
Alternatives 81 3.0%
Subtotal 1,060 40.1%
Total 2,641 100%
Domestic Investment
59.9%
ForeignInvestment
40.1%
Mandate
43.5%In-house
56.5%
Nov 30,2014
Note:1. Alternatives include real estate, infra-
structure, gold & commodities ETF and
hedge fund.
2. Fixed income includes bank deposits,
domestic & foreign bonds, loans to
insurees and Loan to agricultural
insurance fund.
Equities
42.5%
Alternatives(1)
3.1%
Fixed income(2)
54.4%
19
Equities
42.5%
Ⅳ-3. Steady Assets Allocation (con’t )
Russia 0.79%Europe (29.13%)
Eurozone 14.76%
UK 8.60%
Switzerland 2.08%
Norway 0.56%
Poland 0.80%
Others 2.33%
North America (38.21%)
US 32.91%
Canada 2.89%
Mexico 2.41%
Asia(18.48%)
Japan 6.46%
China 1.93%
South Korea 2.58%
Malaysia 1.51%
Hong Kong 2.05%
Singapore 1.00%
India 0.55%
Others 2.40%
Australia 3.01%
New Zealand 0.35%
South Africa 1.56%
Brazil 2.70%
註: Other Areas(Middle East, North Africa, South America, etc.) 5.77%
By the end of November 2014, the foreign investment of the labor funds amounted to US$ 34.2 billion.
20
Ⅳ-4. Beating target return
Till the end of November this year, the AUM of the labor funds amounted to NT$2.6
trillion with a ROI of 6.05% and return of NT$146.1 billion, which beat the target of
88.6 billion by 57.4 billion. If NT$10.6 billion of National Pension Fund’s gain further
added, the total return reached NT$156.7 billion.
FundReturn
(NT$ 1 billion)Rate of Return
Rate of Expected Annual Return
Labor Pension Fund ( The New Scheme Fund )
71.7 6.12% 4.09%
Labor Retirement Fund (The Old Scheme Fund )
41.3 7.11% 4.05%
Labor Insurance Fund 32.0 5.81% 3.36%
Employment Insurance Fund 0.9 0.97% 1.11%
Occupation Incidents
Protection Fund0.09 0.81% 0.93%
Overdue Wages Payment Fund 0.15 1.53% 1.51%
AUM of Labor Funds 146.14 6.05% -
National Pension Fund 10.58 6.03% 3.39%
Total AUM 156.72 6.05% -21
Ⅴ Future Prospects
22
Ⅴ-1. Strengthen Global Portfolio Strategy
AlternativeAllocation
Nov,2014
Central
Allocation
2014
LPF 4.72% 8%
LRF 2.97% 4%
BLI 0.58% 5%
EM Debt
EM Equity
Alternative
Investment
Regional
Investment
Core InvestmentGlobal Equities and Bonds
Adopt Strategic Index
(Smart β)
Asia ex-
Japan
Equity
AlternativeInvestment
23
Ⅴ-2. Participate in Local Infrastructure Projects
Invest in government bond, state-owned enterprises’ corporate
bond and commercial paper
As of the end of November this year, BLF has invested NT$58.8 billion in
the above asset classes, which helps domestic infrastructure to be
funded. We’ve practically participated in domestic infrastructure projects .
Loan For Economic Constructions
If needed in the future, loans would be granted to governments at all
levels and the state-owned enterprises by our funds.
• Respond to the Economic Power-Up Plan of the Executive Yuan by
allocating investments on domestic infrastructure projects.
BLF would make proper investments on internal public construction
plans by means of providing financial capital under the security,
profitability and liquidity of the funds.
24
Ⅴ-3. Promote Socially Responsible Investment
The principle of Socially Responsible Investment (SRI) has formally been
incorporated in the Investment Policy statement of the Labor Funds which
takes corporate social responsibility under investment consideration in
addition to pursuing profitability.
In the year of 2011, the Labor Pension Fund adopted the “Taiwan RAFI
EMP 99 Index” to launch relative return mandates In order to lead business
entities to increase employment.
This year TWSE launched the Taiwan High Compensation 100 Index and
the BLF has soon completed a selection of investment mandate adopting
such index as the benchmark so as to promote the idea of raising salary for
the labor.
Till the end of November this year, the labor funds has made NT$465 billion
of investment, which is about 95% of our domestic equity position, to the
enterprises which is approved with better CSR performance.
25
Ⅵ.Conclusion
Looking to 2015, the global economy is generally
expected to recover gradually. Nevertheless, lots of
uncertainty remain exiting and need to be responded
carefully.
The Bureau of Labor Funds shall continue to perfect
our investment mechanisms on the ground of current
basis and exert synergistic effects so as to deepen
and widen the Funds’ global portfolio strategies for
the laborers’ long term benefits.
26
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