Funds management under fire

OUTSOURCING::Legislators across party lines blasted the government’s handling of the Labor Insurance and Labor Pension funds, which have suffered heavy investment losses

By Jake Chung  /  Staff writer, with CNA

Fri, Nov 02, 2012 - Page 1

The investment managers of the Labor Insurance Fund and Labor Pension Fund could come under scrutiny in the wake of reports the insurance fund could go bankrupt by 2016, reports that have led to widespread anger among workers.

Inquiries by the Financial Supervisory Commission (FSC) and the Council of Labor Affairs (CLA) found that the trust fund handling the Labor Insurance Fund, ING Securities Investment and Trust Co (ING SITC, 安泰投信), had made unusual money-losing investments with Labor Insurance Fund and Labor Pension Fund money.

A vice president at ING SITC reportedly caused the Labor Insurance and the Labor Pension funds to collectively lose more than NT$100 million (US$3.4 million) by investing in shares of Ablerex Electronics Co Ltd (盈正豫順電子), a power supply equipment supplier, through dummy accounts.

Huang Tien-mu (黃天牧), director-general of the commission’s Securities and Futures Bureau, said the government has punished 13 securities investment trust companies over their misbehavior in the Ablerex case, including three that are not allowed to raise new money.

The ING SITC vice president and fund managers from two other funds were fired for involvement in illegal activity in connection with the Ablerex investments, while another fund manager was suspended for one year, Huang said.

ING SITC said in a statement that it respects the authority of the council, but regrets the moves taken against it, noting that it had immediately suspended all activities of the vice president involved in the Ablerex case.

However, legislators across party lines took up the issue yesterday, criticizing the FSC, with Democratic Progressive Party (DPP) Legislator Hsu Tain-tsair (許添財) saying the government’s handing over of management of its four major funds — Labor Insurance, Labor Pension, Public Service Pension and Postal Savings — to securities firms was irresponsible and prone to secrecy.

Chinese Nationalist Party (KMT) Legislator Lu Shiow-yen (盧秀燕) asked the commission to launch an general inquiry into whether there were similar issues with other outsourced funds managed by other securities firms.

FSC Chairman Chen Yuh-chang (陳裕璋) said the commission was proactive in uncovering the problem, and it would maintain constant vigilance over securities firms.

The commission will make a general inquiry into how securities firms were handling the government’s funds, Chen said.

“I believe this [Ablerex] is a single case, but we will strengthen inspection for these firms,” Chen said.

Council of Labor Affairs Minister Pan Shih-wei (潘世偉) said the council would talk with ING SITC, but if it did not receive a “positive response” it would sue the firm.

Speaking at the meeting of the legislature’s Social Welfare and Environmental Hygiene Committee, Pan said although ING SITC was gradually returning the money that the firm’s mishandling had cost the Labor Insurance Fund, talks on compensation for the Labor Pension Fund had yet to be begin.

Labor Pension Fund Supervisory Committee chairperson Huang Chao-hsi (黃肇熙) told DPP Legislator Liu Chien-kuo (劉建國) that the council would do its best to fight for the rights of workers, but everything depended on whether the courts found ING SITC’s handling of the two funds’ accounts were illegal.

The committee had found discrepancies in ING SITC’s investments as early as October 2010 and had reported the finding to the FSC, which had fined ING NT$240,000 for filing unclear investment reports.

The commission had contacted the committee again about the situation in July and the committee managed to recover the money in three accounts that were in ING SITC’s hands, Huang said.

Huang said the committee had been negotiating with ING about compensation since July, but the firm was only willing to pay back the NT$13 million in one account even though it had caused the Labor Pension Fund to lose NT$81 million.

“I gave the firm one last chance yesterday,” Huang said, adding that if the firm refused to come to terms today the committee would be taking legal action.

However, Huang also praised ING SITC, saying that it had helped the Labor Pension Fund earn NT$1 billion in 2010.

Bureau of Labor Insurance deputy manager Luo Wu-hu (羅五湖) said that the Labor Insurance Fund had recovered NT$50 million from ING SITC, adding that it would continue to ask for the other NT$38 million that the firm had cost the fund.

“If the firm is unwilling to cooperate, we would not rule out legal action,” Luo said.

The Public Service Pension Fund also waded into the issue yesterday morning, saying that it would be filing for compensation with ING SITC for the losses incurred, totaling NT$64.2 million.

The Public Service Pension Fund said that it would be terminating its contract with ING SITC early due to security concerns, adding that part of the reason was that the firm was being investigated by the FSC over its investments in Ablerex.

The lack of supervision within ING SITC led to its mistake of investing in Ablerex and losing public money, the Public Service Pension Fund said, adding that it had made the decision to ban ING SITC from any outsourcing management applications with it.

It also said that up to the end of September, it had made NT$10.2 billion, adding that, if unrealized income were tallied up the approximate number would come to NT$27 billion.

Period yield for the Public Service Pension Fund stood at 5.628 percent, while the annual yield rate stood at 7.503 percent, it said, adding that it had not suffered any major losses, despite media reports to the contrary.

Meanwhile, DPP caucus secretary-general Tsai Chi-chang (蔡其昌) made a motion requesting that investment for the Labor Insurance Fund and Labor Pension Fund be made more transparent in an effort to raise government efficiency at fund management.

Pointing out that the average return rate for the Labor Insurance Fund from 2002 through last year was about 3.03 percent and the Public Service Pension Fund stood at 2.39 percent, Tsai said that the world’s largest pension fund, the California civil service pension fund, had a average return rate of 6.25 percent over the duration of a decade.

Long-term return rates for any domestic Exchange Traded Funds (ETF) stood at 7.23 percent, and the Bank of Taiwan had over 1.78 percent returns over a period of 10 years for the two-year fixed deposit program, Tsai said.

“If we get a 1.78 percent return for a fixed deposit, which doesn’t require any handling, it shows that the government’s handling of the funds was not that efficient,” Tsai said.

The government should increase the rank of the fund monitors and decrease its intervention, Tsai said, adding that raising the quality of the management level and establishing special research teams would also help to increase efficiency.

Information on fund investment should also become more transparent, and any investment of individual stocks leading to a 20 percent loss should be publicized so that the public would know which securities firm has a bad record, Tsai said.

DPP caucus whip Pan Men-an (潘孟安) said the DPP had always asked for the government to periodically announce information concerning the handling of the labor insurance, labor pension, public service pension and postal savings funds.

“It is only reasonable as the various government funds have invested at least NT$800 billion in the stock markets, and we should know what investments are being made and how many shares are being held by the funds,” Pan said.

Pan criticized the government’s citing of “commercial secrets” as evasive, adding that it was the opaqueness of operation that caused government funds to be targeted in the first place.

Meanwhile, ING SITC insisted the scandal stemmed from malpractices of a former employee and it was not fair to blame losses on the firm.

“As a global asset manager, the company will not allow individual associates to set its policy or investment decisions,” the company said in a statement.

The company has helped the Labor Pension Fund grow its book value by more than NT$4 billion since being chosen as its unconditional asset manager in 2006, the statement said.

Separately, the Securities Investment Trust and Consulting Association called on fund houses in a statement to strengthen internal oversight and self-discipline to minimize malpractice.

The trade group painted the dispute involving ING SITC as “misbehavior on the part of a few individuals” for which the Financial Supervisory Commission has dealt due punishment to the company and its employee, the statement said.

The association said fund houses should step up internal control and improve business accountability and transparency to win public confidence, the statement said, adding that investors can help by tipping authorities off on any irregular activity.

Additional reporting by Amy Su and Crystal Hsu