The West Kowloon Cultural District Authority has confirmed it has dropped Hewitt Associates as a consultant to its HK$21.6 billion ($2.8 billion) endowment fund.

A WKCDA spokesperson says the organisation “received a proposal from a consultant on investment strategy for our endowment in 2009. The consultant proposed a 6% investment return target, but the target was made at a time after the financial crisis and when the management team was not fully on board.”

The spokesperson now adds that WKCDA intends to invite consultants to pitch again, and is in early stages of recruiting a custodian and fund managers.

Sources indicate the WKCDA is likely to scrap that plan. First of all, two years have passed since Hewitt’s appointment (which market participants confirm won the consulting mandate). Nothing has been done; the cash sits in at least 15 different bank accounts scattered around Hong Kong.

The authority’s fiscal statement for year-end as of March 2010 shows it received HK$229 million ($29 million) on ‘bank interest income’ and ‘income from placement with the Hong Kong Monetary Authority’. Obviously a better interest rate than your correspondent is getting at HSBC these days.

With expenses totalling HK$73 million for FY2010, the authority reported a net profit of HK$156 million ($20 million). Add this to its original endowment, and as of March 2010 its total balance of assets stood at HK$21.8 billion.

Secondly, the people running the authority may have changed their minds about how to handle the endowment. A 6% return implies investing into risk assets, such as equities. Given the constant turnover of authority management, not to mention the general inability of Hong Kong’s senior politicians ever to make controversial decisions, the likelihood that WKCDA will accede to such a strategy is fading.

Indeed, the authority’s biggest spending needs are related to construction of the district, which is supposed to begin in 2014. In other words, most of the money is meant to be spent over a short- to medium-term horizon. Therefore liquidity needs may trump the need to earn a return.

According to the WKCDA’s website, 73% of the money will go to ‘planning, design and construction’. The remainder goes to recurrent expenditures on repair and renovation, museum collection and project management.

Calls to Hewitt were not returned but the firm presumably will be allowed to make a new pitch.

Flip-flops over what to do with the endowment seem to occur regularly at the WKCDA, a reflection of its lack of steady management. AsianInvestor.net reported in April 2009 how a lack of management was impeding initial attempts to invest the money, and we called for the WKCDA to hire a professional consultant to sort it out for them.

The WKCDA did so later that year, generating excitement that this new pot of money was going to be made available to fund managers. However, it remains stuck in managerial limbo and has not followed up the Hewitt appointment with any decision on custodians, trustees or fund managers.

Says the spokesperson: “We are now working on the details of our project development plan and, until then, we would have a better idea on our projected cashflow.”