Not so long ago, a third-party investment manager handling government funds caused heavy losses for Taiwan’s Labor Pension and Labor Insurance funds. Now another market trader is suspected of speculating on shares with board members of an over-the-counter listed company, causing the pension fund to lose more than NT$60 million (US$2 million).
Minister of Finance Chang Sheng-ford (張盛和) has suggested setting up a “Taiwan sovereign fund,” but nothing more has been done about it. If fund managers are inexpert and third-party traders keep mishandling the funds, establishing a sovereign fund could be a solution, since it could kill two birds with one stone by averting rogue trading and improving investment performance.
Sovereign funds are wealth funds that are owned, controlled and budgeted for by governments. They seek to maximize return on investment following risk adjustment and are managed by specialist investment bodies independent of the central bank and finance ministry.
Norway’s Government Pension Fund Global is recognized worldwide as the best-governed sovereign wealth fund. Some aspects of the Norwegian fund’s operations would be worthy references in planning for a future sovereign wealth fund for Taiwan.
First, the purpose of the fund is to provide welfare for the nation’s citizens and its basic strategy is clear. In principle, the fund’s overseas investments have no political strategic purpose and it does not gain controlling interests in the companies in which it invests. It is also stipulated that the fund may not invest in companies that act immorally, violate human rights, are involved in major corruption or badly damage the environment. The fund is not allowed to manipulate the market share price of single companies, or to hold more than 3 percent of the total shares of any one company.
Second, the Norwegian fund has established commercial, professional and independent operating principles. Its internal organizational structure, mode of governance and management team are like those of a world-class private investment firm, rather than a government administration department.
The fund enlists first-rate financial talent from around the world. Its chief investment officer and fund mangers are all externally recruited professionals. The makeup of its investment portfolio is made public periodically, as is the rate of return on its investments, and its asset flows are all listed on its Web site. This makes it much more transparent than other sovereign wealth funds.
Another notable feature is the fund’s ethical council, with a broad-based membership, including not just economists, but also philosophers, human-rights lawyers, product safety experts and experts in international law.
It must be admitted that many difficulties stand in the way of setting up a Taiwan sovereign fund.
First, existing funds are based on different laws. They serve specific groups of people, have differing regulations about charges and are answerable to different government departments. These factors will make integrating all these funds a complicated task.
Second, it will take a long time to draw up all the necessary legal amendments and new legislation.
Third, it will not be easy to find highly qualified personnel and set up an independent body or company to manage the fund’s investments, without over-concentration of power, and to make the fund’s operations completely transparent and free of political interference.
Setting up a Taiwan sovereign fund is achievable, and the successful experiences of other countries are available for reference. It can be done if the government is diligent in its planning so that the obstacles can be overcome.
Lee Wo-chiang is a professor in the Department of Banking and Finance at Tamkang University.
Translated by Julian Clegg
Since the rancorous and histrionic breakup of the planned “blue-white alliance,” polls have shown a massive drop in support for Taiwan People’s Party (TPP) Chairman and presidential candidate Ko Wen-je (柯文哲), whose support rate has dropped to 20 percent. Young people and pan-blue supporters seem to be ditching him. Within a few weeks, Ko has gone from being the most sought after candidate to seeking a comeback. A few months ago, he was the one holding all the cards and calling the shots, with everything in place for a rise to stardom. The Democratic Progressive Party (DPP) was still dealing with doubts
Counterintuitive as it might seem, the opportunist presidential candidate Ko Wen-je (柯文哲), chairman of the Taiwan People’s Party (TPP), responds to the need for an economic left in the Taiwanese political landscape. The Democratic Progressive Party (DPP) has been seen as a left-leaning party because of its advocacy for gender equality, and LGBT and minority rights. However, the DPP has tended toward free-market liberalism under President Tsai Ing-wen’s (蔡英文) leadership. How did the once grassroots, populist party turn to free-market liberalism? One reason is that Tsai is a cautious, piecemeal reformist. Recall the days when the Tsai administration started with a landslide victory
US think tanks, societies and organizations have recently not been shy or hesitant to get involved in Taiwanese matters; they seem to do so with an apparent purpose. Earlier this month, Simona Grano, a senior fellow on Taiwan at the New York-based Asia Society, penned a lengthy and thorough primer on Taiwan’s elections next month. In her primer, Grano noted that Washington had “reservations” about all four (now three after Terry Gou [郭台銘] dropped out) candidates for the presidency. With these reservations, one senses a clear change and expansion of purpose from the Asia Society. Originally formed in 1956 by John
The three teams running in January’s presidential election were finally settled on Friday last week, but as the official race started, the vice-presidential candidates of the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP) have attracted more of the spotlight than the presidential candidates in the first week. After the two parties’ anticipated “blue-white alliance” dramatically broke up on the eve of the registration deadline, the KMT’s candidate, New Taipei City Mayor Hou You-yi (侯友宜), the next day announced Broadcasting Corp of China chairman Jaw Shaw-kong (趙少康) as his running mate, while TPP Chairman and presidential candidate Ko Wen-je