Managers face risks in battle with inflation
PENSION fund managers, facing the daunting task of beating the wage inflation rate, have been forced to take a different approach to managing money for Hong Kong funds.
In Western countries, where inflation is running at two or three per cent, pension fund managers can safely invest in bonds which yield around seven per cent and easily beat the rate of inflation.
But Hong Kong fund managers must invest in stocks and other riskier products.
Hill Samuel investment director Richard Nicholas said: ''The burning question is how much to have in Hong Kong equities because of the perceived risk of Hong Kong.
''There is a continuing conflict because you have wage inflation higher than anywhere else in the world and trustees who want low-risk investments. The two do not go hand-in-hand.'' The challenge is to find the right mix between risk and reward - to make enough money for the fund without risking too much of it on the stock market.
Jardine Fleming has adopted an investment strategy based primarily on equities.
One of the critical jobs of a fund manager is to pick the right time in the economic cycle and the appropriate instrument to invest in.
Jardine Fleming Investment Services director Desmond Chan said with the present economic cycle he would be heavily biased towards equities, rather than bonds.
Mr Chan said the allocation would be around 94 per cent in equities, five per cent in cash and just one per cent in bonds.
He said the cash component was kept in case special opportunities arose, such as new public share offerings.
''We believe bonds will not outperform this year, but we have kept one per cent of the portfolio in bonds for a punt.'' Many of the large fund managers decide to invest by looking at the big picture of which markets should perform best and then pick stocks in that market.
One of Hong Kong's leading fund managers has a different approach.
Richard Darke, managing director of institutional business for Fidelity Investments, said the Fidelity approach was ''bottom up'' rather than ''top down''.
''Rather than have economists making big country bets, we are research intensive and focus on individual stocks for a long-term holding,'' he said.
''Our aim us to invest in a conservative way in medium to large capitalisation stocks.'' But for clients who want to take a more conservative approach, fund managers such as Jardine Fleming also offer discretionary accounts for larger customers.
This basically means the fund manager will invest the money according to the client's wishes and risk tolerance.
Mr Chan said while most clients followed Jardine's recommended investment strategy, there were some who wanted to be more heavily weighted in bonds because they were a more conservative investment.
