WHAT is the difference between a successful fund manager and the Hong Kong Government? The successful fund manager has customers for its product.
Sadly, the Government has a lot of product but no customers.
In the process of fending off those naughty market manipulators, the state became our largest shareholder. Now almost one year down the road the Government has a plan for disposing of the bulk of these shares so it can try to turn its paper profit into cash and a more acceptable form of reserves.
The Government plans to sell the shares to the public in a fund. This will be easier said than done. Initially the target customer will be retail clients. Hong Kong retail investors are not your traditional unit-trust types as 'buy and hold' in local trading dialect means keeping shares for the week - at most.
In addition, the amount of shares the Government wants to sell is more than 30 times the value of Hong Kong's largest existing equity fund. So a hard sell will be needed.
The Government will have to figure out a variety of schemes such as offering discounts, loyalty bonuses or tax savings to entice the public into this deal. Obviously, the commencement of the MPF will help a bit as these units are well suited for the pension fund.
One reason that unit trusts are not popular in Hong Kong is because of their cost. With up-front fees of 5 per cent and then nearly 2 per cent annual management fees, they are a tough sell. If the Government can cut these fees they will steal business from existing fund managers.
