Dismal returns of MPF’s low-fee fund are a symptom of the scheme’s overall mediocrity
Stephen Vines says tinkering with the Mandatory Provident Fund won’t do much good, the scheme itself needs to go
Yet again the suckers who were led to believe that things were improving over at the MPF discovered that a strategy capping management fees at 0.75 per cent meant that the modest savings made were entirely overshadowed by the gains that could have been made in most other funds.
The problem with this explanation is that bond prices rarely excite so there was a considerable level of predictability here and it really did not take a genius to look at the stock markets and discover that a big rally was under way. Surely, knowledge of what the markets are doing is precisely what fund managers are paid for.
However, and this was cause for great excitement over at the MPF headquarters, 2017 was indeed a good year for other funds that collectively registered their best performance since 2010, with an average gain of 22.3 per cent. Sounds impressive, eh? But this was the year the Hang Seng Index rose 36 per cent – making the MPF gains look distinctly shabby.
The MPF, of course, does not make a simple comparison with equity performance but trumpets the claim that its funds managed to beat the average inflation level of 1.8 per cent during these 17 years. Setting the bar low for comparisons sure as hell makes them look better.
In an ideal world, meaning one in which bureaucrats are kept at bay, the MPF would be scrapped. Its 588 employees could be redeployed into doing something useful, and the roughly HK$500 million per year spent on running the authority would be saved.
The bigger achievement would be to let employees themselves decide how to use their own money and put it in schemes that are not primarily of benefit to a small group of immensely wealthy fund managers.
The bigger picture is that every time an attempt is made to tinker with the system, it either produces new problems or only marginal benefits; what remains is the stark reality that the MPF is fundamentally unfit for purpose.
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster