The Bureau of Labour Funds has been verbally asking third-party managers to exclude Hong Kong entities from its contracts since last year. — Bloomberg
TAIPEI: One of Taiwan’s largest pension funds has guided outside firms against using Hong Kong-registered entities to manage its money, according to people familiar with the matter, underscoring the geopolitical challenges facing the financial hub as it deepens ties with mainland China.
The Bureau of Labour Funds (BLF), which manages about US$235.2bil, has been verbally asking third-party managers to exclude Hong Kong entities from its contracts since last year, the people said, asking not to be identified because the information is private.
A public entity in the self-governing island of Taiwan, the BLF regularly gives out mandates to global asset managers to invest in equities and fixed income.
While the fund has cautioned against investing in China due to economic concerns and financial risks, its stance toward Hong Kong units of global firms wasn’t publicly known.
The financial hub was named a “sensitive jurisdiction” by the BLF when it selected fund managers for a US$1.6bil mandate to invest in sustainable real estate securities in September, the people added.
Asset managers have different practices for assigning outside mandates. Some are based on the firm’s head office, while others are determined by where the portfolio managers sit.
The BLF awards contracts based on a number of factors including the quality of operations and fees.
The BLF gave a mandate to a Hong Kong entity run by a global manager as recently as two years ago.
The Northern Trust Co of Hong Kong Ltd won a mandate for global passive equity in September 2023.
The shift comes as Hong Kong becomes increasingly intertwined with mainland China, despite its one-country, two-systems setup.
Following the imposition of the National Security Law in Hong Kong about five years ago, the United States suspended the city’s preferential trade status.
In April, Taiwan’s president and chair of the ruling Democratic Progressive Party required members to report trips to China, including Hong Kong and Macau.
The following month, Taiwan’s legislature discussed “enhanced management” of civil servants’ visits to these regions as well.
Hong Kong invoked national security laws in June to ban a Taiwanese-made mobile game for the first time.
Hong Kong police accused the game of advocating armed revolution and overthrowing the government in Beijing.
Authorities said players faced possible arrest for downloading Taiwan-developed Reversed Front: Bonfire, which lets them “overthrow the communist regime”.
The BLF said last August that its self-managed portfolio had no direct investments in China or Russia, while its outsourced portfolio investing offshore still had exposure to the regions from the indexes used by asset managers as performance benchmarks.
The BLF manages pension funds from compulsory contributions from employers to employees in the jurisdiction.
Its mainland China investments stood at about US$1.58bil, or 0.8% of the fund’s total exposure, as of the end of 2023.
The BLF declined to comment on emailed queries. — Bloomberg
