HONG Kong's mutual funds industry is on the verge of taking off, thanks to several factors, including the imminent introduction of the Mandatory Provident Fund, a fund marketing expert says. Just as the industry in the United States expanded rapidly with the introduction of employer-sponsored personal pension plans, so the provident fund scheme would boost Hong Kong's mutual fund sector, said LGT Asset Management's director of funds marketing, Michael Yuen. 'Ten per cent of what every working individual earns every month will go into some sort of professionally managed investment,' he said. Although the Legislative Council approved the Mandatory Provident Fund scheme in principle after lengthy debate last summer, the programme's details have yet to be hammered out. Mr Yuen nevertheless remains optimistic about the future of the scheme and the local funds industry. 'If 10 per cent of your monthly earnings have to go into a certain product, you start to pay attention,' he said. 'That's what happened in the US.' The American mutual fund industry enjoyed the world's highest market-penetration rate, Mr Yuen said, with nearly 40 per cent of the adult population investing in its products. In comparison, only 3 per cent of Hong Kong people had mutual fund holdings. In part, the industry's poor showing could be explained by a traditional reluctance on the part of Chinese to entrust management of their wealth to others. 'Look at all the listed companies in Hong Kong,' Mr Yuen said. 'A lot of them are still majority-owned by their founding families.' Aside from investing in the family business and other corporate stock, Chinese people tended to put their money into tangible items, such as real estate and jewellery, or leave it as cash in the bank, he said. In addition, the fund industry had contributed to its own problems by catering to a small group with 'high-octane' products such as highly geared funds, single-country funds and warrants. This ran contrary to the real philosophy behind mutual funds - which Mr Yuen described as long-term investment and diversification of risk - and it had caused people in the territory to perceive professionally managed investment funds as speculative. Part of the reason why the industry had bungled its local marketing effort was because Hong Kong fund managers were primarily engaged in investing foreign funds into the region rather than raising cash from local people, he said. For most of the territory's fund management companies, marketing remained an 'add-on' to the primary task at hand: finding profitable investment opportunities for the massive amounts of institutional money flowing into the region from abroad. Ironically, however, with so many companies managing their Southeast Asian investment operations from Hong Kong - and basing a token marketing force in the territory - a wide range of investment products had been made available. About 60 fund houses offered more than 1,000 mutual funds in the territory, Mr Yuen said. Because Hong Kong was a wide-ranging financial centre, even products not locally authorised could be purchased through intermediaries. This broad product base - combined with the arrival of the provident fund scheme and the advent of slower economic growth, which would make traditional investments less attractive - would eventually sow the seeds of the local funds industry's rise, he said.