Wed, Feb 28, 2001 - Page 17 News List

Central Bank rejects pension fund request

OVERSEAS INVESTING A government pension fund wants to invest overseas to try and recoup losses incurred propping up the local market, but has been turned down

By Stanley Chou  /  STAFF REPORTER

A government pension fund that lost heavy last year trying to prop up the nation's bourse, had its dreams of recouping its losses squashed by the Central Bank yesterday.

The nation's Central Bank of China (央行) confirmed yesterday that it rejected an application made by the Civil Servant Pension Fund (退撫基金) earlier this week for an annual foreign exchange quota.

The Civil Servant Pension Fund had sought to use the foreign exchange to invest in international equities and bond markets.

"There has never been any government fund requesting to invest overseas and apply for foreign exchange from the Central Bank. Generally speaking, any government fund has to get approval from the Ministry of Finance first, and private funds have to get approval from the Securities and Futures Commission and Central Bank before investing overseas," said an official of the Central Bank who requested anonymity.

Officials at the Pension Fund were reportedly irked at the Central Bank's decision, vowing to go over the CBC's head.

"It's necessary to diversify the fund's risk into international markets, we cannot put all of our fund's money in Taiwan," vice chairman of the Civil Servant Pension Fund's management committee Yeh Chang-ming (葉長明) said on Monday.

"We simply cannot accept the Central Bank's decision," said Yeh.

But according to the Central Bank, the application was rejected because the Civil Servant Pension Fund is a domestic fund and should not be used to invest in overseas markets.

In order to resolve the conflict, the Examination Yuan, which oversees the fund's operations, is expected to seek the assistance of the Executive Yuan.

"Its not in the public interest for the Central Bank to forbid the four government funds from investing overseas," said Henry Cheng (鄭百亨), managing director of Manulife Funds Direct. Manulife Funds Direct specializes in international mutual funds investments.

"To diversify its fund capital into global equities and bond markets is to minimize volatility. They shouldn't put all their eggs in one basket. The Central Bank, on the contrary, is trying to go against this principle.

"Since the capitalization of Taiwan's stock market consists of about only 1 percent of the world equity market, together with its high volatility, choosing not to diversify carries a high risk. Last year, the four government funds generated huge losses from their investment in Taiwan's stock market. It provides a good example on the nature of such concentration," Cheng said.

"On the other hand, it's also good news to domestic fund industry. Since the authority has recently deregulated the business of discretionary managed account, if Central Bank's decision is final, it means that government funds would give their fund money to a number of domestic fund companies, and foreign fund groups would be excluded from the list," Cheng said.

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