MPF managers have "nowhere to hide" as regulator pushes for governance report
Hong Kong’s pensions industry welcomes the regulator’s new requirement to submit an annual governance report that publicly discloses metrics such as fund performance, fee levels, and other charges.
It comes while the city’s pension system has been under pressure and criticism from the public for its poor performance in the past 12 months.
This new initiative to enhance transparency of governance reporting of the Mandatory Provident Fund (MPF) was put forward by the Mandatory Provident Fund Scheme Authority (MPFA) earlier in August.
It requires each MPF trustee to submit an annual governance report on all MPF schemes under their trusteeship for all financial years ending on or after November 30, 2022.
The reports need to be endorsed by their board of directors and made available bilingually on MPFA’s website as well as trustees’ own channels for members’ easy access.
Key assessment areas include the overall performance of constituent funds, levels of fees and other charges, quality of service, investment manager selection, and ongoing reviews, MPFA said in the initiative.
In November 2021, MPFA also set out a reporting requirement for trustees to disclose the MPF scheme’s sustainable investing strategy and implementation progress. Under the new initiative, such disclosures will be integrated into the annual governance report.
“It’s arguably the most significant and most practical initiative that the regulator has put upon to raise transparency and accountability,” said Francis Chung, chairman of MPF Ratings.
“Over the long term, it is the best practice that will benefit members because it creates transparency. And it makes trustees fully accountable for the performance of their funds. And because the regulator is willing to publish it, there's nowhere to hide,” Chung told AsianInvestor.
A DECENTRALISED SYSTEM
Hong Kong’s MPF scheme currently has 4.59 million members. Compared to its global peers, MPF’s investments are not centrally managed. Under MPFA’s supervision, different MPF managers provide a number of retail funds for members to choose from, while the choice of fund provider is in the hands of current employers. Members can choose to switch providers for their MPF accounts under previous employers.
Amid market volatility, MPF posed nine-month investment losses of a record HK$258.9 billion ($33 billion) as of the end of September, equivalent to HK$56,500 in paper losses per member, according to MPF Ratings data.
As a result, by end September, total MPF assets have fallen below the important HK$1 trillion ($127.4 billion) level. At approximately HK$965 billion ($122.9 billion) in assets, this is the first that the pension scheme has fallen below the HK$1 trillion milestone since it surpassed it in July 2020.
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There are currently 15 MPF trustees in Hong Kong, including major life insurers and banks such as HSBC, Citi, Manulife, and Sun Life. Under their trusteeship, there are different investment managers in charge of various MPF funds.
Previously, there was no systematic arrangement for MPF trustees to regularly report their value-for-money assessment to MPFA.
“The industry, including trustees and fund managers, has been constantly monitoring factors such as fund performance, fee structure, and quality of service. But there is no unified reporting and disclosure requirement,” the senior manager of a trustee told AsianInvestor.
He thinks the initiative is part of the eMPF infrastructure, where members can make flexible adjustments to their portfolio by comparing the performance of different fund managers.
The eMPF is a digital platform that MPFA is constructing to integrate all MPF schemes into a one-stop system to simplify administration and management for members and managers. It will come into operation in 2025 at the earliest.
The city’s MPF managers also welcome the initiative. Charlotte Chan, head of distribution, Hong Kong workplace and personal investing at Fidelity International, thinks the transparency the governance report brings will enable members to make informed decisions and increase their confidence in the system.
"Rather than seeing them as requirements, we do see it as a way where the industry can work together in enhancing our service and reporting, highlighting the overall MPF system and bringing value for our members," Chan told AsianInvestor.
Fidelity is under the trusteeship of HSBC. Chan said the firm is in discussion with HSBC, clients, and industry consultants on the approach and format of their reporting.
In the initiative, MPFA set out a template for MPF trustees to formulate the report. However, the regulator stresses that the template is not intended to be exhaustive nor to be regarded as regulatory requirements.
“The regulator has given a high-level guideline and it's very helpful,” said Chan. “At the same time, it allows different industry players to take a different approach. And that would also be conducive for further changes and further improvements down the road.”
But MPF Ratings’ Chung thinks that the lack of established reporting standards may create an unintended risk where larger trustees with deeper pockets can generate a better report, while the smaller ones, which may perform well, don’t have the resources to submit reports in similar depth.
“Despite this being a positive initiative, the report may [offer] different levels of depth, quality, and delivery — which potentially creates an unlevel playing field,” Chung said.
On that note, Fidelity’s Chan believes it is important for industry players to actively work together to align on an approach that would be workable for all.