The agonies of Jardine Fleming - the territory's flagship fund management group - following its embarrassing encounter with regulatory authorities in Britain and Hong Kong has recently dominated the industry's agenda. But the scandal and ensuing problems at Morgan Grenfell and Newton Investment - both of which have operations in the territory - are distractions from the same event. Hong Kong's fund management industry is big and has great potential. The industry will play an important role in the territory's drive to become a services centre in Southeast Asia. Estimating the size of the sector is difficult, as it would have to include private and commercial banks, insurance companies and off-shore and local fund management groups. A recent survey of 40 groups found total funds under management is about US$94 billion, a 10 per cent rise in 12 months. The Investment Funds Association survey also found about 70 per cent of the assets under management are from overseas. Of the total assets, 24 per cent (or $22 billion) were invested in the Hong Kong stock market. The bulk of the total assets were institutional funds, such as money from pension schemes or trusts. The majority of fund management groups based in Hong Kong are the Asian operations of major European or American groups. A galaxy of global fund management talent, such as Schroders, Rothschild and Fidelity, have well-established operations. Increasing their assets under management depends on their ability to attract overseas mandates and boost the local market. Mandates for part of the United States and European pension fund business are an obvious target, as are those country's unit trusts investing in Asia. The proposed Mandatory Provident Fund, to be introduced next year, could boost annual funds under management by more than US$5 billion. Furious lobbying of the Government is underway to prevent the introduction of any foreign asset or currency restrictions. An equally interesting battle is being fought in the territory's bank branches and fund management group investment shops. Net sales of unit trusts topped US$100 million in April with total sales during the first quarter hitting $445 million. This pushed funds under management to a record $37 billion. But the level of understanding and awareness among the potential retail market is still disappointingly low.
