MPF whales likely to swallow minnows in changing market
New regulations will only strengthen a trend towards consolidation among pension investors
The Mandatory Provident Fund market is likely to see more mergers as smaller companies struggle to compete with the giant players in the market.
The latest Gadbury Group MPF market-share report shows large companies dominate the rankings, as they embrace the idea that growth through acquisition can bring long-term benefits.
A prime example, US financial firm Principal has risen to the No5 spot with a 6.3 per cent market share after its acquisition of AXA's MPF business is completed next September. Before the deal, Principal stood in eighth place and AXA at tenth.
The merger helped Principal to leapfrog ahead of bigger competitors, including Bank Consortium Trust, Sun Life and Fidelity.
The 19 MPF providers collectively manage HK$561 billion on behalf of 2.5 million employees.
Another merger is under way. Standard Chartered in September said it was selling its MPF and other pension business to insurer Manulife Financial. Manulife is already the second biggest provider with a 19.1 per cent market share. The top spot is dominated by HSBC and its subsidiary Hang Seng Bank, which have a combined 29.3 per cent share of the market.
Given the huge differences in scale between the providers, it is reasonable to assume that some of the smallest ones will sell their MPF business to the biggest players sooner or later.
The eight smallest MPF providers have a combined market share of about 3 per cent.
The smallest operator, Haitong, only has a share of 0.071 per cent, or HK$399 million under management.
The small MPF players will face more pressure on their operations after the government carries out reforms to the MPF, including requiring all providers to have a core fund with a fee cap at 0.75 per cent, compared to the market average of 1.7 per cent.
Facing tough competition and new regulations, the small operators may think twice about whether they want to remain in the MPF market. This, in turn, will likely cause more consolidation.