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MPF dangles wrong lure for wrong top executive

The Hong Kong Government operates on the assumption that if it wants top people for top financial posts it has to pay top salaries.

That is why it pays Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong about $8 million a year, far above what he could expect on the civil service pay scale.

That is also why it is now considering proposals to pay the managing director of the Mandatory Provident Fund Schemes Authority (MPF) $5 million a year plus bonus.

The reasoning is obvious enough. The MPF chief will be in a position to make or lose hundreds of millions of dollars for Hong Kong's pensioners.

If an extra million dollars in salary is the difference between the man who can make the money and the man who will lose it, then pay up. It is a cheap price.

It seems logical but actually it is not.

In the first place, someone is under a misapprehension here about what fund managers make.

They are not the most highly paid people in the investment business. In fact they are mostly nearer the bottom than the top of the pay scale.

The pay may have been a bit higher in Hong Kong than elsewhere in recent years because bull market conditions most of this decade have distorted things a little, but the head of Asian markets for a big Scottish fund management firm, for instance, will be lucky to make GBP80,000 a year including bonus.

That's not bad. It is about $1 million year. But that is for a senior position and the holder of the job is under constant stress.

He has to sell his funds as well as manage them, which the MPF chief will not have to do, and he is out of a job tomorrow if his bosses think he is not delivering.

The really big pay in the investment business is made by people who can directly point to a much greater income they make for their employers.

Examples are the star trader on the dealing desk who skirts deftly around the edges of the law on proprietary trading, or the senior stockbroker who bares his fangs at his juniors when they try to talk to his accounts, or the investment banker who can consistently maul his rivals to claw in the big corporate deals.

These people work 26-hour days, face the constant threat of dismissal for getting their office politics wrong, burn themselves out within a few years and even then don't make $5 million as a contracted salary.

They get by far the most of their pay as bonus and if it is a tough year then tough luck about the bonus.

But why are few salaried fund managers on this list of top earners? That is easily answered with another question. If a fund manager is actually so good at his job that he can truly get the markets consistently right and make bundles of money, why should he be doing it for you? Why hasn't he done it for himself instead and long been gone to sun himself on a yacht off Tahiti? Exactly. The future direction of share prices is as much a mystery to him as is to you or, in nine cases out of 10, Tahiti is exactly where he would be. His skills lie in managing money; which is to say collecting it, putting it to work in the markets, squaring the books, keeping straight with the law and reporting to you. It is no mean service but it is not the future of Cheung Kong revealed.

If, however, he makes you think it really is revealed to him then he will probably collect more money to manage and, if he does this well, he may make himself a top earner. But it will be for his services to his employer as a salesman, not as an investor.

It is highly unlikely that the Government will get value for money by paying $5 million to someone who is not required to sell funds and who, in any case, will mostly invest passively in proportion to index weights.

What it will get is someone whose skills lie in finding employers who pay more money. Hire that wee Scottish fella instead, Mr Tsang. He is good and for GBP100,000 he will jump tomorrow.

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