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SCMP Reporter

HONG KONG'S pension fund managers last year beat inflation but failed to outpace accepted benchmarks, surveys have shown.

Two leading reviews of the territory's billion-dollar fund management industry reveal a mixed performance which poses questions for the territory's pension scheme trustees.

Towers Perrin and Watson Wyatt both gauged returns and found that the managers had outpaced the territory's persistently high, but falling, inflation rate.

Perrin's survey found that pension fund managers last year failed to beat accepted benchmarks but adopted strategies that increased investor risk.

A review of the performance of the territory's biggest pension fund managers - whose combined pension assets top $4 billion - showed 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, which 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. However, they made gains in fixed income.

 In addition to measuring the fund managers' total return, Towers Perrin 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 had added about 6 per cent due to market timing and had 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 the results showed that Hong Kong pension schemes were paying active management fees but the fund managers were 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,' Mr Cooper said.

 Towers Perrin uses a 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 his decision to invest in a market and monitor its stock performance. Towers Perrin's three-year-old benchmark has not been altered. It consists of 65 per cent equities - nearly one third of them in the FT-Actuaries Hong Kong - 27.5 per cent in global fixed interest and 7.5 per cent cash.

   Mr Cooper said local fund managers had performed poorly when required to make investment decisions about foreign markets.

This was highlighted by the number of fund managers who were under-weight in the US, one of the year's top-performing markets during 1995.

 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.

   Fifteen management companies failed to beat the European index over one and three years.

 The Watson Wyatt report covered the management of 306 funds with combined assets exceeding $56 billion. It showed the median performance for last year was about 15 per cent compared with a loss of 13 per cent in 1994 but that most managers generally under-performed major world indices, such as the FTA World Equity Index.

 All the schemes monitored posted positive returns and more than 75 per cent beat the consumer price index.



Hong Kong operators 'miss the mark'