MPF Fund Performance: Why Investment Rules Cap Returns, Says HKIFA Chief

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

Hong Kong’s MPF has long been accused of “fattening the fund industry” — low returns, high fees, limited choice. But the chairwoman of the Hong Kong Investment Funds Association, who also heads a major fund house’s Hong Kong business, argued that mpf fund performance is better than its reputation suggests, and that strict investment rules are what keep returns from climbing higher.

How Has MPF Fund Performance Fared Since Launch?

According to MPFA data, MPF delivered an average net annual return of 2.5% after fees over the 11 years from its December 2000 launch to end-2011, beating Hong Kong’s 1.1% inflation over the same period. Compared with the US 401(k) plan’s 1.5% (2000–05) and 2.6% (2005–09) average annual returns, MPF’s record is no worse, she said — a result the industry considers in line with expectations.

Why Can’t MPF Returns Go Higher?

MPF investment rules are deliberately strict — for example, only investment-grade bonds may be bought — so members cannot expect high returns from low-risk products; and after Lehman and the financial crisis, relaxing those rules in the current political climate is no easy task. These constraints inevitably cap what MPF can earn, leaving returns short of public expectations.

Is There Room for Fees to Fall Further?

Yes, but it hinges on two factors: how much administrative work the law demands of trustees — electronic versus paper statements already cost differently — and scale, meaning total market assets, per-fund size and average account balance, where bigger generally means better cost efficiency. She noted the 30-year-old 401(k) holds four to five times the average balance per Hong Kong account, with management fees of about 0.6% plus roughly US$70–80 per account in admin charges.

Why Is Full Portability Off the Table for Now?

The biggest stumbling block is not industry systems but the law: moving to full portability means changing the arrangement that lets employers use MPF contributions to offset long-service and severance payments — the crux of why it cannot happen soon. As for “semi-portability,” due in November 2012, only half of a member’s assets can follow a chosen trustee, which limits its appeal; no major new price war is expected this year, since “those who would cut have cut.”

(Editor’s note: some characters in the original report were corrupted; year figures such as “December 2000” have been reconstructed from context for reference only.)