CMG Asia, an MPF provider and administrator, sees more growth potential in expanding the administration side of its business than from trying to attract additional corporate Master Trust clients. The insurer's director of operations, C. F. Yam, says most insurance companies have attained an MPF market share in line with their position in the market, and it is unlikely that there will be much switching of corporate accounts (Master Trust arrangements) because of performance issues. He says the MPF market is expected to evolve into an individual member business as staff turnover, terminations and new hires lead to the creation of many accounts. This will lead administration companies to start acting more as central registries of accounts rather than as administrators for particular corporate clients, he predicts. As for new business growth, Mr Yam says the complexity of administration is likely to lead to some movement of business towards administration specialists such as CMG, as some providers formerly handling back-office functions internally will decide to outsource. 'There is such a tendency now. I think the market is moving towards a situation where there will be a few major administrators. Actually, I prefer not to use the term 'administrator' any more. I prefer to refer to 'member registries' handling all the book work,' Mr Yam says. 'We will certainly be servicing more products from more providers, but as members quit jobs and join new companies, their MPF funds either stay with the existing scheme, move to the new employer's scheme or go to another scheme. Eventually people might have five or six benefits with different schemes. This could become very inconvenient for individuals in the future. I see our company acting as a central registry serving 10 to 20 or however many products.' CMG, owned by the Commonwealth Bank of Australia group, invested more than HK$200 million in preparing for the MPF scheme. The company's MPF target market is medium-sized companies. Mr Yam says the operation is now in profit on a cash-flow basis, although the investment will take time to recoup. He says the MPF system overall appeared to be working well after its first two years, following a fairly rough first year. 'I don't see any major hiccups in the market these days. It has started to function properly. Employers have mostly mastered the MPF compliance procedures, but I do not think members fully appreciate the value of their MPF. This will take more time. Right now their accounts are mostly small, and they still treat contributions as a form of tax.' As to the overall impact of the MPF system, Mr Yam says it is misleading to look at the HK$51 billion in MPF assets held at the end of September. He says the figure includes a great deal of money from existing schemes that have been rolled over into MPF. A more relevant figure is the estimated HK$20 billion in annual new contributions. 'I don't think this makes a major impact on the financial industry yet. It has certainly had an impact on customer behaviour. It has cut the disposable of the lower income group by forcing them to save,' Mr Yam says. Although the employee contribution rate is just 5 per cent, many smaller businesses have found ways to pass their contribution back to staff, sometimes simply by offering lower wages to new staff. The MPF has resulted in a shift of money away from the banking sector towards insurers and fund managers, despite the banks' best efforts to capture their own MPF markets, Mr Yam says. Another effect is a shift from short-term to long-term savings in Hong Kong, and in the longer term the local bond market will be stimulated by the requirement that MPF managers leave 30 per cent of assets in Hong Kong dollars. 'It will probably help the bond market to a certain extent. If you look at the MPF association statistics, about 50 per cent of new monthly assets are in Hong Kong dollar certificates of deposits or bonds. The absolute amount is still small, but it will have a stronger effect over time. It will help create a demand for Hong Kong dollar bond instruments.'