Why Hong Kong’s Fund Industry Called for MPF Investment Rule Reform in 2011

In November 2011, the chairwoman of the Hong Kong Investment Funds Association told a radio interview it was time to review the rules governing MPF investments. Unremarkable today, the call was a telling footnote in the MPF reform debate of its era — the US sovereign rating had just been downgraded, global equities had slumped, and MPF’s 10-year average return net of fees had slid from 5% to 2%.

Why did anyone demand MPF investment-rule reform in 2011?

The HKIFA chairwoman said in November 2011 that rules governing MPF investment had been in force for over a decade and deserved review. She warned that if the US or other developed countries lost their sovereign ratings again, MPF funds might have to exit those assets with nowhere deep and highly rated enough to go — money with no outlet.

Backdrop 1: AAA ratings no longer safe

Some MPF funds were required to hold top-rated (AAA) assets, mostly US bonds. But America’s sovereign rating had been cut; if more developed nations followed, funds forced by the rules to exit would face a dead end. Her call targeted investment limits written for an older era.

Backdrop 2: 10-year returns halved, 5% to 2%

With global equities sliding, MPF’s 10-year average return after management fees had fallen from 5% to 2%. Squeezed between weak returns and unchanged fees, members’ discontent grew — and so did the demand to reform the rules and widen investment choice.

Backdrop 3: the renminbi dream

She hoped regulators would widen MPF’s investment universe to RMB products, giving workers more choice. 2011 was the dawn of renminbi internationalisation, when RMB appreciation seemed a one-way bet — linking MPF to RMB products looked like a way to diversify and add options. Fund investment rules are explained at the MPF education hub.