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Taiwan awards $750m in global emerging-market portfolios

Thursday, August 12, 2010

James Syme
Opalesque Industry Update – Taiwan’s Labour Pension Fund (LPF) has become the latest Asian government institution to take a plunge into the growing trend of taking higher risks in their investments for optimum returns. According to a report by Asian Investor, the LPF has awarded at least $750m to two U.S. managers – Morgan Stanley Investment Management and emerging-market boutique Esemplia (part of Legg Mason) – and Zurich-based Vontobel to run its global emerging market portfolio.

The $32.71bn LPF offered the bids for the four-year mandate in April and announced on Wednesday it awarded the three managers $250m each. The LPF said it was targeting returns of at least 250 basis points above the MSCI Emerging Markets IMI Index net of fees and on a rolling three-year basis.

On Wednesday, emerging-market stocks rose to their highest levels since April as technology stocks beat estimates and news reports indicated the Federal Reserve may extend stimulus efforts to stir up the economy, Bloomberg reported.

The MSCI Emerging Market Index climbed 0.5% to 1,015.99 by 5 p.m. in New York, the largest rally in a week. Developing-nation bonds advanced, sending the extra yield investors demand to hold the securities over U.S. Treasuries 17 basis points lower to 2.58 percentage points, the biggest drop since May 27, according to JPMorgan Chase & Co.’s EMBI+ Index. The Brazilian real led currency gains, strengthening 0.6% against the dollar.

Global emerging markets outperforming developed markets
An independent study by Barings Asset Management, an international investment management firm with $43.1bn in AuM, showed that global emerging markets outperformed their developed markets counterparts at the height of the global financial crisis.

Barings cited the outlook for emerging fixed income markets and the recovery in the local currency debt and corporate bond markets as the driving force for the outperformance. James Syme, manager of the Baring Global Emerging Markets Fund, explained that the emerging world can boast higher savings to GDP ratios compared to the developed world with much lower consumer indebtedness, current account surpluses, youthful populations and stronger banking systems.

Early this week, Giancarlo Perasso, Chief Economist for the Matrix Redux Emerging Markets Fund, which is managed by $5.56bn UK based asset manager Matrix Group, predicted that emerging currencies would become winners as uncertainties in developed countries continue to worry investors.

Perasso explained that emerging markets will continue to grow, but most of these economies will implement modest changes in policy, including the postponement of the monetary tightening (See Opalesque Exclusive:here).

Taiwan’s government entities, looking for alternative investments
In March, Taiwan’s Public Service Pension Fund, announced it was reportedconsidering launching a hedge fund ETF portfolio to solve underfunding and mismatches in assets and liabilities.

Tsay Feng-Ching, vice-chairman of the PSPF management board in Taipei, said that the Ministry of Finance and the PSPF have long considered the possibility of introducing a defined-contribution system alongside its present defined-benefit scheme.
-Precy Dumlao

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