The stresses and strains of a crowded marketplace will begin to separate the winners from the losers SIX YEARS ON, and Hong Kong's MPF has become a battleground for the 41 registered schemes and the 313 funds competing in a crowded marketplace that is bound to see consolidation, observers say. Looking ahead, they say, fund performance, service platforms and to a smaller degree, fees, will begin to separate the winners and losers in the battle for survival. 'The race to get scale is among administrators, which is where significant size is required,' said Mark Konyn, chief executive of Allianz Dresdner Asset Management in Hong Kong. 'Now the stresses and strains are beginning to show and over the next three to four years those without a significant share will find it difficult to maintain competitiveness,' he said. As the market matured, member balances grew and job mobility increased, the ease with which accumulated savings could be aggregated into top performing funds would become a key test for selecting providers, added Dr Konyn. 'That will depend on technology and this will dictate who is capable of getting those accounts. The top administrators who have good distribution services should be the winners in the game.' A growing focus on returns would also favour specialist fund managers who provided a full package of MPF services, Dr Konyn said. 'Differentials in performance are becoming quite staggering - up to 200 basis points per annum difference in returns between funds. Accumulate that over 35 years and it translates into a significant difference in payouts.' Some Hong Kong employers and institutions he added, had responded to the differential in fund performances by adding plan providers to their MPF platforms, rather than changing providers. 'So we are starting to see cracks appear and those service providers that can't maintain performance levels will come under increased pressure.' AIA Pension and Trustee managing director Peter Crewe said: 'What I am seeing is the creation of two markets. One is the corporate market where employers are making decisions about service providers, and here we are seeing more medium to large companies undertaking closer reviews of their providers and some active switching as a result.' The switching between providers was being driven by fund performance, rather than fees, which were relatively competitive, he added. Hong Kong Investment Funds Association executive director Sally Wong said the increased focus on fund performance was likely to grow sharper as member balances grew. 'In the first few years of implementation, employers probably focused more on administration and how to ensure compliance. But as the system has now been in place for some time and employees' contributions have reached a not insignificant amount, they are now paying more attention to their MPF, in particular performance, risks, fees and services,' she said. Another key competitive arena developing in the marketplace as the system matured, she added, was the provision of products aimed at converting lump-sums that an employee takes out at age 65 into an income stream (such as annuity products), or to pool assets. Bank Consortium Trust managing director and chief executive Ka Shi Lau said BCT had responded to increasing competition by increasing the number of funds it provided on its MPF platform from four at the inception of the scheme, to nine. It had also significantly increased its advertising budget, introduced special bonuses, lucky draws and cash coupons to attract new members. According to Ms Ka and other industry commentators, fees range from around 1.5 per cent to 2.5 per cent of assets under management - before taking into account special corporate deals that might be negotiated with employers with more leverage. BCT's fees, she said, ranged from 1.4 per cent to 1.9 per cent excluding guaranteed funds, which had to be separately accounted for. But competition in the marketplace had also sharpened the service focus of providers, she said, and BCT had responded by setting up a new customer service centre and continuously updating and automating its administrative procedures. 'What we are endeavouring to achieve is to make it easier and more user friendly for employers to process contributions and do all the paper work.' Nicholas Rogers, investment director and head of institutional business for Fidelity Hong Kong, and Michelle Chua, Fidelity's director of institutional client services, noted that special deals were being offered in the market. 'It is a reasonably fee-conscious environment and is sometimes difficult to get to the bottom of what actual fees are being paid,' Mr Rogers said. 'Fee discounting is taking place and this is one of issues we have to compete on, as well as investment performance.' Desmond Ng, head of institutional business for Invesco Hong Kong, said the increased use of MPF platforms as regular savings plans had led providers to become more dynamic than standard pension funds. 'So we are seeing more of a retail-type advertising of products and more fund choices - which is being driven by market growth and a change in the model.'