Hong Kong’s MPF in April 2012: a snapshot of an era

In April 2012, Hong Kong’s Mandatory Provident Fund was eleven years old: 525 funds, an average fund expense ratio of 1.74 per cent, and six months to go before the Employee Choice Arrangement (“semi-portability”) would let employees choose their own trustee for the first time. What follows reconstructs that moment from a brief contemporary report.

Where did the MPF stand in April 2012?

The MPF of 2012 stood on the eve of “semi-portability”: eleven years in, with about HK$365 billion in assets and over 2.5 million members, yet dogged by complaints about high fees and narrow choice; the Employee Choice Arrangement, due on 1 November 2012, would be the first reform letting employees pick their own trustee. Trustees’ transfer systems were nearly complete, awaiting only the MPFA’s detailed sales guidelines.

What was the market mood?

An Allianz Global Investors executive told a press conference in April 2012 that Asian investors should favour home markets — raising exposure to Asia-Pacific, Japan and Hong Kong/China, adding North America, but avoiding Britain and Europe; overweighting industrials and technology; and in fixed income favouring US and core-European bonds while shunning peripheral names like Spain and Italy and cutting yen bonds.

The view is a time capsule of the post-European-debt-crisis era: in the first half of 2012 the crisis still hung over markets, French presidential and Greek parliamentary elections could roil sentiment at any moment, and with global central banks holding rates near zero, money chased growth stories in Asia and the US.

Why was everyone telling employees to “review every six months”?

Because semi-portability changed the game. Under the old employer-chooses system, employees rarely touched their portfolios; but from November 2012 they would get a yearly chance to move their own contributions elsewhere, so fund houses began urging members to set investment goals and review portfolios twice a year — in substance, an early move in the coming battle for clients. Fund choice was also diversifying beyond the old “just pick a mixed-asset fund” default, with single-market and single-sector options appearing.

Looked at from today, a few hundred words from April 2012 capture more than one fund house’s market view — they mark the MPF’s turning point from an employer-decides system to a member-decides one.