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Fidelity International is the largest independent MPF fund manager amongst the top ten MPF providers in Hong Kong with a market share of 4.5%. Asia Asset Management spoke with K P Luk, the firm’s head of institutional business for Hong Kong, to find out his thoughts on the market.

AAM: In regard to MPF members being given the ability to manoeuvre funds and switch providers; do you think these changes will create more marketing and administrative work for providers?

K P Luk: Yes on both fronts. The Employee Choice Arrangement (ECA) will shift the dynamics of the MPF market from an institutional to a retail-focused market. From originally working with around 300,000 employers, trustees will have to cater to over two million workers. Although there will be no change to the total asset size, the administration work that they have to do will drastically increase.

Most importantly, how do you anticipate the changes affecting your firm?

We look on the ECA as a positive move as we are confident in our well-established client services and fund platform as well as good performance. Our outstanding achievements have been widely recognised; for example, in 2010 we were named Best Overall Fund Management Firm – Asia by the Thomson Reuters Extel Survey for the fifth consecutive year. We also received the Best Client Servicing for MPF in Hong Kong award from Asia Asset Management and Best Equity Pension Group over three years at the Lipper Fund Awards. All these awards are solid testament to our extensive in-house research capabilities, strong investment team and ongoing commitment to providing consistent long-term fund performances and excellent client services to our MPF members.

With investor choice; there will be a real need for comprehensive investor education as well as guidelines for the MPF providers to follow. What initiatives are being put in place to cope with the reforms and how effective do you think these will be?

The need for investor education is the biggest challenge we face from the implementation of the ECA. Although the MPFA has introduced some initiatives, we think there is much more that can be done. Fidelity, as a committed service provider, has always taken a wholehearted approach to providing extensive and comprehensive client servicing, including the following investor education initiatives:

• Regular clients’ seminars and meetings to keep them abreast of the latest market development;
• Face-to-face interaction with clients. Constant improvements to Fidelity’s phone and web services in order to give clients access to their information as conveniently as possible.
• Provide corporate clients and members with guidance during important market events to allow them to make informed decisions. This guidance is critical during times of market volatility, which is why, in addition to our regular communications, we engage corporate clients and members on an ad-hoc basis to discuss important investment issues, i.e. the global financial crisis.
• Educating on “retirement issues” and building awareness of the MPF amongst members are long-term commitments. Since March 2009, Fidelity has launched an investor education program each year in order to share the most basic investment tips and the latest issues affecting the scheme with our members.

What is your outlook for the MPF market over the next three to five years?

We think the system has so far achieved what it set out to do, which was to provide basic retirement protection, provided that the MPF members manage their MPF assets proactively with the right investment strategy. We expect it to continue to grow and develop whilst gaining greater acceptance from the public as average assets/benefits of members accumulate towards a meaningful sum of money.

In terms of fees, what are the pressures that you can envisage?

We always put our clients first and we understand that they are concerned on the level of fees. We were the first service provider to reduce our fee across the board in 2008:

– Lifestyle, bond and equities funds: From 2.12% to 1.57% Reduction: 26%

– Conservative fund: From 1.77% to 1.36% Reduction: 23%

We believe that the pressure to lower fees will continue. Once the ECA is in place, we believe the market will determine fees’ equilibrium price. However, the asset size and the number of players in the Hong Kong market could mean the average cost that each MPF member has to bear will be generally high. Although operating costs as a percentage of assets are expected to decrease over time, the savings may be partially offset by additional risk management and operational procedures that were put into place post-financial crisis.

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