Since the launch of the MPF system in 2000, a large percentage of the working population in Hong Kong is involved in the mandatory, privately managed and fully funded contribution schemes.
Under the system, employers select the MPF schemes while employees decide on their own investment portfolios. With this structured retirement protection arrangement, the choice of professional fund management teams has significant bearing on the future financial health of the general public.
Bank Consortium Trust Company Limited (BCT), one of the major MPF service providers in Hong Kong, adopts a "multi-manager" investment approach in a number of the constituent funds it offers. By blending investment styles and expertise from first-class investment managers into a single fund, BCT's MPF funds are designed to achieve risk diversification and consistent and optimal investment returns.
"No investment manager, not even the best performers, can constantly predict short-term market changes accurately. Trying to capture temporary movements is unlikely to add value to the overall investment portfolio in the long term. Therefore, BCT employs several managers to provide greater performance consistency in variable market conditions compared to relying on the services of a single manager. It reduces risk effectively without compromising the overall return," explains Lau Ka-shi, BCT's managing director and CEO.
Instead of directly managing investment funds, BCT gives clients options which combine the expertise of investment managers from around the world. As an independent trustee, it has no association with any fund management firm by means of ownership or partnership. Such independence allows it to choose top-notch fund managers based on their specific investment capabilities.
In essence, the "multi-manager" investment approach gives investors access to a combination of individually selected investment managers across each asset class, taking advantage of diversity by transcending asset classes and leveraging on differing investment styles. By investing in a mix of asset classes, the effect of fluctuations in each class is smoothed out. As a result, optimal returns for an employee's MPF account are harnessed in the long run.
According to Ms Lau, every investment manager across each asset class is selected using a prudent bidding process. For example, in the selection of investment managers for the MPF schemes introduced in 2000, a proposal request was sent out to a number of fund houses from which about 20 proposals were received. BCT's in-house team then carried out detailed quantitative and qualitative analyses.
“ To identify the most suitable investment managers, our selection team looks into a wide range of factors such as previous company performance, financial status and experience in managing retirement scheme products," Ms Lau notes.
In addition, comparisons are also made regarding company background, the strength of their portfolio management analysts team, core competence levels, the stability of investment experts as well as individual investment firms' fields of expertise.
"Naturally, fund houses' ethical and compliance standards make up a considerable part of the score card. We also check track records and study each case thoroughly. Moreover, we focus on legal and audit control of the investment managers," Ms Lau points out.
Before considering the final pool of fund houses, the BCT selection team makes site visits to evaluate the companies' infrastructure and their ability to deliver client services professionally. Final checks include conducting investor education activities and evaluating required fund performance fact sheets.
Currently, BCT has five independent global investment managers to oversee member MPF funds. Four of the constituent funds in the Bank Consortium MPF Plan employ the "multi-manager" investment approach.
Regarding standardisation and commitment to quality, the monitoring role of the "manager of managers" goes on. To ensure fund managers attain the expected value for clients' performance in terms of risks and returns, BCT's portfolio analysts regularly analyse investment strategies and fund sentiment. Simultaneously, BCT's investment committee obtains indicative information through various channels such as monthly reports. "A strong commitment from top management is reflected in our continuous communication with investment managers," Ms Lau adds.
Apart from a periodic review of fund managers' strategies, investment processes and risk exposure, the investment committee also weighs up the fund productivity by benchmarking the BCT funds against industry standards and peer performances.
If the performance of an investment manager is consistently below BCT's expectations, tighter monitoring measures are adopted. In such cases, senior management of both parties are informed and measures are taken to ensure member funds are protected.
To deal with compliance issues or operational errors, for example late trades, BCT promptly demands full explanations from investment managers and follows up with appropriate action for the benefit of investors.
"If the worse case scenario emerges and replacement of a fund manager is necessary, we have a transition policy that is efficient and cost effective. In implementing the policy, any negative impact resulting from the transition is minimised," Ms Lau remarks.