IN 1999, A GROUP of Hong Kong banks set up the Bank Consortium Trust in preparation for the introduction of the Mandatory Provident Fund. The aim was to help these institutions compete effectively for MPF business, expected at the time to involve high costs and potentially low returns, and to wrest it away from global giants who were able to benefit from their economies of scale. Despite sceptics' doubts and somewhat against the odds, the trust has flourished to become one of Hong Kong's top five MPF service providers. It now offers dedicated services as a professional trustee, custodian and scheme or fund administrator for more than 420,000 members. By the end of August it had HK$13 billion in assets under management. From the beginning, the aim was to have a third-party multi-manager platform, according to Lau Ka-shi, the trust's managing director and chief executive. That was long before the idea caught on among bigger MPF scheme rivals, and allowed for 'different management styles and processes and expertise because, in the long run, that will smooth out volatility', Ms Lau added. It's been a successful strategy, with four of the trust's funds ranked in the top quartile of the MPF performance table published by the Hong Kong Investment Funds Association at the end of March. In addition, the company is providing cost-effective third-party administration services for other fund managers. For example, it was appointed earlier this year as trustee and administrator for Invesco Hong Kong's 60,000 scheme members. One thing Ms Lau is keen to correct is the perception that the trust's main shareholders are 'small' banks. 'The Hong Kong market is dominated by foreign-owned banks. Those like Wing Hang, Wing Lung and Dah Sing are local banks, but I certainly wouldn't call them small,' she said. The eight-member shareholder group also includes the Asia Financial Group, Fubon Bank, the Industrial & Commercial Bank of China (Asia), Liu Chong Hing Bank and the Shanghai Commercial Bank. Between them, the group operates more than 260 branches in Hong Kong, with total assets calculated at more than HK$578 billion last year. 'Our shareholders represent a very strong distribution network, which is one reason we are among the top five players in the MPF market,' Ms Lau said. 'Besides that, we have the advantage of strong backing and are financially very sound.' She said trustee, administration and management fees were levied in a range of 1.6 per cent to 1.9 per cent, versus an industry norm of up to 2.5 per cent. 'All our charges are below 2 per cent,' she said. 'We priced the market correctly from day one compared to other providers, who were a lot higher and later had to reduce their fees.' The original levels set by the trust still allowed for acceptable returns. 'We know the costs and must charge enough to make it a profitable business,' said Ms Lau. 'At the same time, we priced the service at a reasonable level.' Because the market is so competitive, some forecasts said the main players would not generate positive returns for up to six years, but the trust has already been profitable for some time. The Bank Consortium Trust is also the only trustee offering all three types of MPF: a master trust scheme, which is like a pool with many employers and open to all industries; a scheme open only to the construction and catering industries; and an employer-sponsored scheme. Regarding its plans, the trust will introduce new funds next year, adding to the nine currently offered, and hopes to expand its third-party services by picking up additional contracts.
