Jake's View

Here is everything you need to know about the great MPF rip-off

The sale of Standard Chartered’s MPF business to Manulife and the strange reluctance of the two to disclose the price is very revealing

PUBLISHED : Sunday, 20 November, 2016, 1:25am
UPDATED : Sunday, 20 November, 2016, 8:38am

The company [Manulife International] had acquired StanChart’s MPF ... business in September 2015, without disclosing the price.

Business, November 17

This deal has now finally closed, more than a year later, and still both Manulife and Standard Chartered are strangely reluctant to disclose the price.

You would think that as public companies they would have an obligation to inform their shareholders at least. After all, this is a significant transaction and regulators are big on making listed companies report such things.

Never mind. A birdie tells me the price was

US$400 million and I trust my birdie. If either party says the birdie lies, well, tell us then what the real price was, nice and loud, please.

Let’s do some simple arithmetic. We shall call

US$400 million the equivalent of HK$3.1 billion and StanChart reportedly had 2.4 per cent of the Mandatory Provident Fund market. My calculator tells me that if 2.4 per cent is worth HK$3.1 billion then 100 per cent is worth HK$129 billion. And now we have the secret of why these two are so reluctant to talk about the price of their deal. That sum of HK$129 billion tells you that the MPF is a gigantic rip-off targeted at the working people of Hong Kong and that both Manulife and StanChart know it.

How much should these MPF businesses be worth, you ask? Answer: HK$1. If our government had structured the MPF properly instead of creating a pillage pot for the private fund managers to whom it assigned the task of running the money, then these private managers would have found the business returning them just enough profit to make continuing it worthwhile, and not HK$1 more. But we won’t quibble about that HK$1.

You won’t get rich from your MPF fund, but your bankers certainly will

What we have done, however, is let them run a public service for the most basic of living needs and allowed them to milk it for ongoing excess profits that they value at HK$129 billion over and above the level of profit they have internally determined they need to stay in the business. It happened because employers, not employee beneficiaries, make the choice of MPF fund manager and employers don’t care as much. Thus these fund managers have got away with charging administration fees at a stellar average of 1.56 per cent at present in addition to dealing costs..

And still our bureaucrats will not see it. Recently a government MPF spokeswoman wrote in to justify the rip-off on the grounds that MPF schemes provide services that fund managers do not otherwise offer to clients.

“The trustees have to collect and allocate employer contributions, assist in chasing employers for outstanding contributions, provide statutory reporting to regulators, administer how and when withdrawals can be made,” she wrote.

But leaving aside that these are low-cost clerical tasks once the procedures have been established, which they have now long been, MPF managers do not have to sell their services to the market, do not have to compete against each other, receive regular monthly infusions of new money and do not have to worry about sudden unexpected withdrawals.

I imagine that these advantages more than make up for the extra paperwork costs of running an MPF fund. However, I do not really need my imaginings to tell me so. I have hard proof from the industry itself. I have HK$129 billion worth of proof of an MPF scandal. What is more, I have hard evidence that the fund managers fully know it, that they recognise that they overcharge and that they are embarrassed to admit it lest government yet restrain them. I have that evidence in the form of a refusal to divulge at what price the latest deal was done. I had to rely on my little birdie to tell me.

We have them in the dock here and the question has been put to them, “Do you plead guilty or not guilty to the charge of ripping off the Hong Kong public?” And they have as good as responded, “Guilty, your worship.”