Trustees compete in MPF bun-fight

If two is competition, twenty-one is definitely a crowd. That's the number of financial institutions in Hong Kong waging battles to be the dominant trustees in the potentially lucrative Mandatory Provident Fund (MPF) market.

Fund managers are hoping the MPF market will inject as much as HK$30 billion (US$3.8billion) a year into their portfolios come December 1, 2000 when the city's 300,000 employers are required to begin contributing 5% of their workers' salary to retirement funds.

HSBC Trustee - with over 2,000 agents qualified to sell MPF schemes - is aiming to capture a 40% market share; AXA China's 3,000 agents are aiming to carve out a 20% share; Manulife's 2,800 agents want 20%; and Standard Chartered, with 400 agents and 80 branches, aims at a minimum of 10%. The remaining 17 trustees in the bun-fight include Aetna, AIA-JF (an AIA-Jardine Fleming alliance), Bermuda Trust, and Bank Consortium, a special 10-bank consortium created for the MPF market.

Steve Butler, managing director of pension funds consultant William M. Mercer (HK & PRC), believes HSBC is likely to get its targeted share of business. As to the rest of the trustees, even if they split the market equally among themselves they will not be able to sign up 15,000 companies each, or 5% of the market, which is the minimum number of plans Butler believes a master trust will need to survive. Trustees who are pouring in hundreds of millions of dollars to develop their MPF business can expect to wait for up to seven years before breaking even.

To succeed in the MPF market in Hong Kong, a trustee needs a broad clientele base of small and medium companies, a strong sales team and efficient back office support. The first two of the three factors have already forced Citibank to withdraw from the race. Some of the trustees left standing, it seems, may have got their market share forecasts terribly wrong.