Schroder Investment Management (Hong Kong) has three main roles in Hong Kong's MPF system, according to K. P. Luk, who heads up the the company's MPF services. 'We provide investment products for our MPF customers, so we are an own-products service provider. We also provide investment funds for third-party distributors - other banks or insurance companies - enabling their investment products to invest in our underlying unit trusts. '[Then there are] . . . management services for other providers. We manage the portfolios underlying their particular MPF products.' Schroders has been stressing in its education sessions with MPF members the benefits of dollar-cost averaging. In bear markets, dollar-cost averaging means members are buying a greater number of cheap units which will be worth far more later when they eventually retire. Unfortunately, if members happen to be near to retirement age, their equity exposure will affect their payouts unless there is a market bounce before they cash in. 'Members, of course, are very concerned about the returns from their funds,' Mr Luk says. 'We try to comfort them by explaining the dollar-cost averaging effect. Most of the members have not accrued very much in their funds so far. After two years it's only a few thousand dollars for many of them. They are unhappy, but not seriously concerned about it, so it is still under reasonable control. 'We try to show members the benefits of the dollar-cost averaging effect, we explain to them they are investing in cheap markets. We hope this makes them more comfortable. But it is a particularly unhappy situation for those who have transferred large sums of their money over from an old Occupational Retirement Scheme Ordinance (Orso) scheme. These members are particularly disappointed.' Former members of Orso schemes who have transferred into an MPF-type fund were once expecting a final benefit expressed as a multiple of their final salary. Now in bank account-type funds, the payout is tied to market performance until their retirement date. Mr Luk says the amounts at stake for these Orso transferals varied. Members suffering most were those who had chosen growth or other high-equity funds. 'A ball-park return for a balanced MPF fund, with about 70 per cent global equities, would be down more than 20 per cent since its launch, on average. It is true that if you are in the fund for 10 years, you won't remember the current conditions, but if you are caught at this moment, you are particularly disappointed.' Mr Luk says Schroders is experiencing quite a steady inflow of funds and business in its MPF operations. The demand for information from MPF fund members seemed to have slackened off after the scheme's first year, he says. 'For the first year or so you could see all the newspaper headlines talking about bad returns, but this has continued for about two years, so it seems members accept the poor performance is mainly due to the bad economy.' Schroders, like other MPF providers, has seen little evidence of corporate MPF customers switching to other providers, although Mr Luk says he had heard of some aggressive sales tactics in the market-place. 'I understand some market players are knocking on some employers' doors, asking them if they want to change. But there would not be a significant number actually making a change as I understand it. 'Everyone still has a short track record in MPF. If you go to a similar fund with a similar equity content, the performance is pretty much the same from manager to manager.' Mr Luk says he expected some industry consolidation in the year ahead after the MPF's second year of operations. 'There are some things going on, especially on the administration side and among service providers who provide administration. Especially for the small players, it is an expensive game for them if they are not getting market share.'