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Public Service Pension Fund Operation Parameters and Investment Procedures

1.Annual Pension Fund Utilization Plan and Asset Allocation

In order to establish a basis for annual utilization of the Pension Fund and to set a yearly target for income, in accordance with the Public Service Pension Fund Management Act, six months prior to the commencement of the new year, taking overseas and domestic economic and financial conditions and the Pension Fund budget into account, the PSPFMB draws up its annual operation guidelines and plan.

Looking at the 2018 Pension Fund asset allocation arrangement, according to income category, the fixed income to capital gains and alternative investments asset allocation ratio was 41.0% to 54.0% and 5.0%; by investment region, the domestic to overseas investment allocation ratio was 50.9% to 49.1%; by operational method, the in-house management to discretionary management allocation ratio was 52.0% to 48.0%.

2.Public Service Pension Fund Operation Parameters

In order to establish institutionalized financial investment procedures to ensure that projected investment targets are suitably met, with equal attention being paid to both security and profitability, in addition to formulating the Public Service Pension Fund Financial Management Operational Guidelines, the Fund’s Management Board establishes relevant parameters for handling investments, including investment quotas, norms for selecting investment objectives, investment procedures, risk control and performance review, so as to enhance financial operation outcome, ensuring a stable, long-term performance.

3.Public Service Pension Fund Investment Procedures

For the sake of prudence, the Management Board’s investment decisions involve further considerations in addition to following the annual plan and asset allocation. Scholars and experts are enlisted from outside to join monthly investment consultation sessions to analyze and assess not only the domestic and global macroeconomics, but also the equity and foreign currency markets. Following discussion of the Public Service Pension Fund’s general investment direction, the group makes investment recommendations in the present month for the Public Service Pension Fund’s references.

After taking into account the recommendations of the Investment Consulting Group, the Management Board convenes a weekly strategic investment meeting, at which the most appropriate investment portfolio strategy is decided based on analysis, such as the overall status of investment items, market conditions, and fundamentals. The investment strategies resolved at the meeting are subsequently handed over to the Department of Finance’s investment group to execute and follow up the investment decisions on a daily basis in line with market trends.

Public Service Pension Fund Investment Scope

 

1.Investment Scope defined in paragraph 1 of Article 5 of the Public Service Pension Fund Management Act:

(1)Purchase government bonds, treasury bills, beneficiary certificates, corporate bonds, stocks of listed company.
(2)Deposits in bank accounts designated by the PSPFMB.
(3)Investments and loans for facilities and equipment related to the welfare of Public Service Pension Fund participants.
(4)Loans to governments at all levels or government-owned enterprises for economic development or investments that can be recouped or repaid according to annual budget.
(5)Investments reviewed by the Public Service Pension Fund Supervisory Board and approved by the Examination Yuan and Executive Yuan deemed profitable to the Public Service Pension Fund.

2. Augmented investment items submitted for Examination Yuan and Executive Yuan approval:

(1) Domestic and ove.
(2) Domestic and overseas listed or OTC underwriting company stocks.
(3) Overseas investments in accordance with the investment items outlined by the provisions of sub-paragraph 1, paragraph 1, Article 5 of the Public Service Pension Fund Management Act.
(4) The domestic and overseas securities lending.
(5) Stock index futures, forwards exchange, or other related derivative vehicles for hedging purpose.
(6) Asset securitization products.
(7) Mutual fund raised by bank trustees.
(8) Derivative vehicles to enhance the investment profit.
(9) Private equity securities, gold passbook and other alternative assets.

Results of Public Service Pension Fund Discretionary Management

1.Domestic Discretionary Management

In addition to in-house deployment, in the effort to accommodate national finance and banking policies and facilitate asset management, the Pension Fund has entered into 15 batches of domestic discretionary management mandates since July 16 2001. As of the end of 2018, the total domestic discretionary amount was NT$43.5 billion, which included 12th(extended), 13th(extended) , 14th and 15th active batches. (Details are given in the chart below.)

Sequence Type Contract (renewal) Date Amount (NT$;billion) Number of Discretionary Agencies
12th domestic discretionary mandate(extended) Equity 2012.06.05 10 2
13th domestic discretionary mandate(extended) Equity 2014.09.26 10 2
14th domestic discretionary mandate Equity 2015.03.03 18.5 4
15th domestic discretionary mandate Equity 2018.10.16 5 5
2.Overseas Discretionary Management

Further, in order to spread risk and boost overall profitability through global investments, the Pension Fund has actively pursued overseas investments since May 2002. And Pension Fund has entered into 12 batches of overseas discretionary management mandates since December 22 2003. As of the end of 2018, the total overseas discretionary amount was US$4.338 billion, which included 4th(renewal),5th(renewal),6th(extended),7th(extended) ,9th(extended) and 10th to 12th active batches.(Details are given in the chart below.)

Sequence Type Contract (renewal) Date Amount (NT$;billion) Number of Discretionary Agencies
4th overseas discretionary mandate (renewal) International Equity 2013.09.14 381 1
5th overseas discretionary mandate (renewal) Asia-Pacific Equity 2014.04.28 263 1
International Equity 2014.06.04 454 1
6th overseas discretionary mandate (extended) International Equity 2011.08.16 650 3
Emerging Market Equity 2011.08.16 200 1
7th overseas discretionary mandate(extended) Global Investment Grade Corporate Bond 2012.06.07 340 2
9th overseas discretionary mandate(extended) Global High Dividend Equity 2014.10.01 500 2
9th overseas discretionary mandate Global Low Volatility Equity 2015.06.01 250 2
10th overseas discretionary mandate Global Infrastructure Equity 2015.03.18 150 2
Global Real Estate Equity 2015.06.01 150 2
11th overseas discretionary mandate Global Multi-Asset 2017.06.05 600 3
12th overseas discretionary mandate Total Return Fixed Income 2018.06.05 400 4