HONG KONG'S major pension fund managers last year failed to beat accepted benchmarks but adopted strategies that increased investor risk, a survey by Towers Perrin, the pensions specialist, has revealed. A review of the performance of the territory's biggest pension fund managers - whose combined pension assets top $4 billion - said only one of the 17 managers out-performed the Towers Perrin benchmark during 1995. The territory's three biggest managers - HSBC Asset Management, Jardine Fleming and Schroders, who account for about 55 per cent of the total retirement market - were easily outpaced by a 'dumb computer' benchmark that tracks index movements. According to the company's research, only Morgan Grenfell - with a return of 22.3 per cent - beat the benchmark return of 19.7 per cent. The worst performer was LGT, which returned just 8 per cent, with poor performances in Europe, Asia, Japan and the United States. The managers also lost ground in Hong Kong but made gains in fixed income. In addition to measuring the fund managers' total return, Towers Perrin also assessed the value the managers added to portfolios through market timing and stock selection. The research revealed that during the past three years the average manager has added about 6 per cent due to market timing and lost about the same through stock selection. Towers Perrin compiled the research for those responsible for monitoring pension fund performance. Typically this would be the trustees of company pension schemes. Greg Cooper, director of actuarial and asset consulting, said: 'Hong Kong pension schemes are paying active management fees and the fund managers are not adding any value. What the fund managers are claiming they are good at - stock selection and market timing - this research shows they are not good at.' Towers Perrin uses a sophisticated method of analysis which compares the performance with an agreed 'benchmark', based on recognised indices. The company can track whether the fund manager has accurately timed its decision to invest in a market and monitor its stock perform-ance. This year's performance data is particularly significant because of the Government getting the green light from legislators to proceed with the Mandatory Provident Fund. Fund managers will be devising new products and strategies to win mandates to manage the pension assets of the territory's employers. A critical factor will be the performance achieved with their existing funds under management. Towers Perrin's three-year-old benchmark has not been altered. It is comprised of 65 per cent equities - nearly one third of that in the FT-Actuaries Hong Kong - 27.5 per cent in global fixed interest and 7.5 per cent cash. Mr Cooper said: 'Generally, when fund mangers have had to make an investment decision in markets outside of Hong Kong they have performed dismally. It is very difficult to outperform an index in a developed market, particularly on an on-going basis.' For example, the US stock markets were the unexpected stars of 1995. But most managers missed the gains by being underweight in the market during the year. Only Morgan Grenfell and Swiss Banking Corporation beat the US index during the year, and only five outpaced the benchmark over three years. Japan was another market that consistently beat the best efforts of the local managers. Only Schroders and Fiduciary were able to improve on index returns during the past 12 months. Fifteen management companies failed to beat the European index over one and three years. Mr Cooper said: 'Trustees should measure their managers against benchmarks and pick fund managers to specialise in those areas that they are good at.'