Is Taiwan Ready for a Sovereign Wealth Fund?

Podcasters, left to right, Leo Seewald, Jennifer Wang, and David Weng.

A changing international environment is opening new opportunities.

In this year’s Taiwan White Paper, AmCham Taipei introduced the first of what is intended to be a series of “Big Ideas” on how to move the Taiwan economy to a higher level. The initial proposal is for Taiwan to create what is known as a Sovereign Wealth Fund (SWF), a government-run fund that would use a portion of the nation’s foreign exchange reserves to engage in overseas investments in the interest of higher returns or fulfilling strategic objectives.

The White Paper stressed the benefits a SWF can bring in gaining international commercial influence to help counteract the political and economic isolation that Taiwan often faces. “A fund that holds just a few percent of a corporation’s stock is sure to have the ear of the company’s board and top management,” the analysis said. “The investments could also lead to new business opportunities in Taiwan domestically, while making possible greater financial growth and diversification.”

Carrying the discussion forward, the Chamber last month cooperated with the “Taiwan Matters Podcast” hosted by Nicholas Gould to bring together a panel of financial experts. The participants were AmCham president Leo Seewald, a former country head for BlackRock Investment Management in Taiwan; Jennifer Wang, formerly Financial Supervisory Commission chairperson now a professor at National Chengchi University’s department of risk management and insurance; and David Weng, CEO of Taiwania Capital Management Corp., a national development fund established in 2018 by the Taiwan government.

Opening the conversation, Gould noted that Taiwan is the only one of the four Asian Tigers without a SWF. Although the idea has faced political hurdles in the past, he posed the possibility that the environment may have changed due to the Tsai Ing-wen administration’s high public approval following its effective handling of the coronavirus pandemic.

The panel members agreed with the assessment that a SWF for Taiwan is overdue – but that it will take top-down pressure from President Tsai to see it materialize. In the past, the Central Bank and other financial officials have always adopted a highly conservative attitude toward Taiwan’s overseas investments. They stress that Taiwan’s lack of membership in the International Monetary Fund means that Taiwan is largely on its own in the case of any financial crisis.

Countering that argument, Seewald said that funding the SWF need not involve more than 10% of Taiwan’s large pool of forex reserves, which currently stands at just under US$500 billion. However, the advantages of a SWF investing in large-cap global companies could be substantial in raising Taiwan’s international profile.

Multinational companies “always think China, China, China, China – they’re not aware of some of the tremendous things going on in Taiwan,” said Seewald. But being among their investors and having access to the board enables you to “say ‘did you know that in Taiwan we have this expertise’ or ‘in Taiwan we have this company doing this,’ and they will start to listen.”

Weng said that the Taiwania fund that he heads – which focuses on domestic companies, especially startups – could be viewed as a precursor for a SWF. He described the current environment as the perfect opportunity for that development, as Taiwan is well-positioned to be a strategic partner for the U.S. in restructuring global supply chains and engaging in investment projects.

While supporting the creation of a SWF, Jennifer Wang noted some of the challenges, especially the need to hire a team of investment professionals with the type of experience and expertise not currently found among civil servants.

The podcast is accessible at taiwanmatterspodcast.com/.

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