Franklin Templeton Investments has gained a respectable share of the MPF fund-management business over the past two years, according to the company's director of sales and marketing, David Chang. 'We do not have exact figures but we are quite comfortable with our market share. The key thing is we have experienced a steady growth in the past 12 months. I think this is due to the respectable performance of the funds we provided.' Franklin Templeton's role in the MPF is purely one of investment. 'Unlike some of our competitors, we do not have our own scheme. We only work with outside sponsors, providing approved funds for them,' Mr Chang says. Templeton's other role in the MPF is managing money for the two schemes serving the construction and catering industries. The MPF system has continued to swell with contributions, despite the lack of investment returns since its launch. According to MPF Association figures, the MPF system held US$6.6 billion at the end of September. Mr Chang says Franklin Templeton started out in the MPF market with four sponsors - banks and other institutions that include Templeton funds as part of their investment portfolios - and another joined this year. A sixth is in the process of signing up. 'We have seen steady growth of assets and inflows and at the same time additional sponsors have come on board. Market share is one thing, but we consider this kind of growth is more important. Adding a sponsor is one way of making sure that your market share does not shrink. The pool can be growing but if you just maintain your status quo, the market share is lower.' Templeton, like other managers, also monitors closely its profitability and growth of assets in the MPF business. The management fees associated with MPF are much lower than in traditional unit trusts, but fund managers including Templeton are still keen participants in the MPF market. 'The asset-management business is all about volume. Adding another million or billion dollars under management does not require much, or often any, additional infrastructure investment. The profit margin improves with volume,' Mr Chang says. He says the MPF system appears to be working fine, overall. 'Hong Kong has been looking into providing retirement benefits for the workforce for a long time. Looking back, it is a good project that started at the wrong time for markets.' The majority of MPF members should experience future positive equity returns which will offset the past two years of shrinkage, Mr Chang says. 'People who have a pretty long investment horizon hopefully have a long period to make up their investment losses.' Templeton does not deal directly with MPF individual members but it has undertaken investment seminars for members at the request of scheme sponsors. 'A lot of scheme sponsors like the members to hear directly from the fund houses. We have probably not been as active in this area as some other mutual fund managers, but there is quite a decent amount of requests coming in.' Mr Chang says the MPF has made Hong Kong people more aware of investment, and of mutual fund investment in particular. 'The penetration rate of mutual funds in Hong Kong is still very low compared with a lot of developed markets. The MPF helps raise awareness of mutual funds as investment vehicles.' Templeton has not detected any large-scale switching by corporate MPF sponsors between managers. 'People are concerned with the relatively poor performance of a lot of funds. But companies in general just don't want to stir anything up with the MPF,' Mr Chang says. Switching could begin next year after a performance review but he says it is unlikely given the poor overall performance of all equity funds. 'It could happen, but if most managers did relatively poorly, I do not see how switching makes any sense. It is not a single performance issue by a single manager, it is the whole market that has not performed well for the past two years. If one fund has returned 20 per cent and another 18 per cent, is this worth a switch?' Mr Chang suggests the pressure to switch managers may intensify in the next bull market, when performance differences on the upside will become more apparent. One trend Mr Chang has noticed is companies adding more funds to their MPF portfolios for members to choose from. 'The trend is for greater choice. A lot of companies recognise this. Some of their MPF platforms might have offered just one or two managers in the past, but nowadays they recognise the need to add more choice so they are looking around for more managers. It is driven by demand from their members.'