AXA sells Hong Kong retirement fund business
AXA will sell its Mandatory Provident Fund and certain other retirement businesses to Principal Financial Group for HK$2.6 billion, marking the largest transaction in the sector since the retirement scheme was introduced in the city in 2000.
French insurer AXA will sell its Mandatory Provident Fund and certain other retirement businesses to Principal Financial Group for HK$2.6 billion, marking the largest transaction in the sector since the retirement scheme was introduced in the city in 2000.
Brokers say more consolidation among MPF providers is on the way as the market is too crowded. Among the 19 providers, the top four have a 66 per cent market share, with the rest vying for a slice of the HK$547 billion market.
Once the deal is completed, US-based Principal would surpass Bank Consortium Trust to be the fifth-largest MPF provider with a market share of about 6.4 per cent, according to research firm Gadbury. Principal is now ranked eighth, with a market share of 3.5 per cent. AXA is 10th, with 2.9 per cent.
The deal will narrow the gap between the fourth and the fifth-biggest players. BOCI-Prudential, the fourth-largest, has a 7.8 per cent share of the market. HSBC occupies the top spot, with 30.2 per cent, followed by Manulife, with 18.2 per cent, and AIA, with 9.8 per cent.
The sale includes the portfolio of AXA's MPF clients as well as the retirement schemes set up under the Occupational Retirement Schemes Ordinance (Orso) before the MPF came into being.
The deal includes a 15-year exclusive distribution agreement that will allow Principal to sell its retirement fund and allow it to offer MPF and Orso schemes through AXA's proprietary networks in Hong Kong. JP Morgan is the sole adviser to AXA in the transaction.
Rex Auyeung, the president of Asia at Principal, said the deal would allow the firm to leverage AXA's army of agents.
"For Principal, a stronger asset-under-management base will position us well as the market will become more competitive. The relationship with AXA, a globally recognised company, combined with our pension expertise, will continue to drive our growth in Asia," Auyueng said.
The deal is pending regulatory approval and is expected to close in the third quarter of next year.
Chan Kin-por, the legislator for the insurance sector, said he expected more mergers and acquisitions in the MPF sector.
"The administration cost of running an MPF business is very high because many employers refuse to use electronic records and the provider needs to hire a lot of manpower to handle the paperwork. At the same time, the government wants MPF providers to cut fees," Chan said.
"This squeezes the profit margin of MPF providers further and the small players find it hard to make much profit. Only bigger players with economies of scale can make a profit.
"It is possible more smaller players will quit the market."