Bank of Communications Trustee pushed for mainland bonds in MPF: cheap passive funds eyed

This article is a rewrite of a report from September 2012.

Era context: The original was brief, recording a smaller trustee’s breakout strategy on the eve of semi-free choice. In 2012, big trustees could cut fees to win clients while smaller players faced soaring costs — Bank of Communications Trustee bet on “mainland bonds plus passive funds” as its way through.

The Bank of Communications’ trust arm urged regulators to let MPF access the mainland interbank bond market soon, so it could launch lower-fee passive funds and hold its ground once competition opened up.

Why were mainland bonds the key?

Mainland bank bonds generally lacked international credit ratings and failed existing rules; the trustee had already lobbied for relaxation. Its chief executive said in an interview that entering the interbank bond market would open new investment avenues for MPF and enable cheaper passive funds with more member choice.

Why did smaller players need passive funds?

Preparing for semi-free choice — upgrading computer systems alone — had already driven costs up sharply, making it hard for smaller providers to slash fees. The workaround was passive funds: squeezing investment managers’ fees to save an estimated 0.5% to 0.55%. Direct access to mainland bonds would further help launch budget products.

But with many regulations still unclear, genuine mainland-bond MPF products were not expected before 2013 at the earliest.