Government's stock stabilization fund may be turned over to private sector

The government is contemplating turning over management of its NT$500 billion National Stabilization Fund to private equity managers, a Government Information Office statement said yesterday.

According to local media reports yesterday, securities companies such as Yuanta Core Pacific, Polaris and Chase Fleming have expressed interest in managing the fund's holdings, which in mid-February were valued at roughly NT$160 billion.

The stabilization fund was launched at the beginning of last year to supplement the four government-managed insurance and pension funds, which routinely intervene in the stock market to boost share prices.

The stabilization fund's goal is to support shares when non-fundamental factors -- such as saber-rattling from China or a natural disaster such as the 921 earthquake -- scare investors into panic-selling.

As of Feb. 15, the stabilization fund had invested roughly NT$170 billion in more than 100 stocks such as Taiwan Semiconductor Manufacturing Co and United Microelectronics Corp.

Much of that buying came last year, as the TAIEX sank more than 40 percent as politicians wrangled over the fate of the Fourth Nuclear Power Plant.

The stabilization fund's management committee, headed by Vice Minister of Finance Lin Tzong-yeong (ĒLŠvĢi), met yesterday to discuss options for the fund.

At the end of last year, the stabilization fund was sitting on paper losses and interest expenses amounting to NT$41.6 billion. A rebound in the TAIEX since the beginning of the year has helped to narrow that loss to NT$10 billion.

Although in theory the private equity managers would be charged with making investment decisions on the fund's behalf, the fund's management committee would still dictate when buying efforts are to take place to support the TAIEX.

In addition, the private equity managers would be responsible for disposing of the fund's NT$160 billion in assets -- but in a way that doesn't negatively impact the TAIEX.

Market watchers say the government wants to turn over the stabilization fund to private equity mangers to shield itself from criticism that its intervention efforts have failed.

Local media also reported yesterday that the government plans to sell off the fund's holdings over a three year period.

One idea that has been proposed is issuing American depository receipts in the US that are backed by the fund's holdings.

Another idea is to follow the example of Hong Kong, which turned its government intervention fund into a mutual fund, selling the subscriptions to domestic investors.

News that the national stabilization fund may be turned over to private managers follows a similar announcement from the Ministry of Transportation and Communications earlier this week.

After the Postal Savings Fund racked up more than NT$50 billion in paper losses helping the government to support shares, the ministry has decided to turn over the reins to private equity managers.

Taipei Times

-- Anonymous, April 13, 2001