Asset Management Trends: Details on unit trusts and mutual funds authorised by the Securities and Futures Commission ("SFC") of Hong Kong.
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Type of funds Number of funds Asset size (US$ M)
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Equity 1,030 143,289.9
Bond 311 77,702.9
Money market 65 69,739.1
Diversified 124 28,841.8
Fund of Funds 63 2,375.5
Index 21 7,869.7
Guaranteed 181 11,733.7
Hedge Funds 4 160.3
Other specialised* 4 421.3
Total 1,803 342,134.2
Umbrella structures 162
Total number, incl. 1,965
umbrella structure
* Includes futures & options funds.
Source: Securities and Futures Commission.
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The total number of SFC authorised funds increased from 1,890 at the end of March 2002 to 1,965 at the end of March 2003.
The number of guaranteed funds increased from 73 to 181, while the number of bond funds rose from 290 to 311 in the same period. However, the number of equity funds, fund of funds, index funds and other specialised funds saw a decline: equity funds dropped from 1,063 to 1,030; fund of funds from 82 to 63; index funds from 38 to 21 and specialised funds from eight to four.
In terms of NAV, the industry recorded a 20% growth at the end of December 2002, as compared with December 2001. Most fund types recorded an increase in NAV, except equity funds and specialised funds. Due to the slump in the global stock markets, the NAV of equity funds dropped by about 21%, while specialised funds witnessed a drop of over 85% in 2002.
Meanwhile, the NAV of money market funds surged 3.7 times. Assets of guaranteed funds doubled and those of bond funds went up by 60%.
Trends concerning international investment funds (First half of 2003)
In the first six months of 2003, bond funds were the most popular. They attracted gross inflows of US$2,858.02 million, or about 30.8% of the total industry sales.
Their contribution to net inflows was even larger - at 58.4% of the industry net total, at US$1,475.82 million.
Equity funds came second in gross sales and recorded aggregate gross inflows of US$2,484.81 million, or 26.7% of the total sales. Aggregate net inflows were at US$12.2 million, about 0.5% of the total net sales.
Equity funds saw net outflows of US$66.35 million in the first quarter, but managed to register net inflows of US$78.55 million in the second quarter.
Guaranteed funds attracted gross inflows of US$2,035.58 million, which accounted for 21.9% of the industry total. Net inflows for the first six months amounted to US$837.92 million, representing 33.2% of the industry net inflows.
LEGAL AND REGULATORY DEVELOPMENTS: In November 2002, the Securities and Futures Commission (SFC) issued the Guidelines on Hedge Funds Reporting Requirements which set out details regarding hedge funds' on-going reporting obligations.
At the same time, SFC also issued the "Circular to Registered Persons Regarding the Marketing of Hedge Funds" to remind financial intermediaries of their obligations to assess whether hedge funds are suitable for their clients.
The SFC and the Hong Kong Monetary Authority (HKMA) signed a Memorandum of Understanding (MOU) in December 2002 to set out the respective roles and responsibilities in the regulation and supervision of Registered Institutions (mostly banks) and their staff in conducting regulated securities activities.
In March 2003, the SFC published a public consultation paper on draft guidelines for regulating Exchange Traded Funds.
In July 2003, the SFC released the Code on Real Estate Investment Trusts (REITS) after a four-month consultation.
The Securities and Futures Ordinance (SFO) consolidated ten existing Ordinances governing the securities and futures market into a composite piece of legislation. It became effective on April 1, 2003. Major new regulatory measures under SFO include:
1 Introduction of a single licensing regime for market intermediaries to streamline regulatory arrangements;
2 Providing a level playing field by standardising the regulatory requirements applying to securities business of banks and licensed brokers;
3 Modernising the regime for disclosure of securities interests of listed corporations to enhance market transparency; and
4 Establishment of a new investor compensation scheme and introduction of better safeguards against misappropriation of client assets by intermediaries for better investor protection.
The SFC published the updated Code on Unit Trusts and Mutual Funds and the Fund Manager Code of Conduct in March 2003. They primarily incorporated technical amendments for the purpose of implementing the SFO.
In June 2003, the SFC signed a Declaration on Co-operation and Supervision of Cross-Border Investment Management Activity (MoU) with the Australian Securities and Investment Commission (ASIC). The MoU laid the groundwork for the recognition of Australia as an Acceptable Inspection Region (AIR) under the SFC's Code on Unit Trusts and Mutual Funds.
NEW PRODUCTS: The SFC issued the Guidelines on Hedge Funds in May 2002, which set out the regulatory requirements for the authorisation of hedge funds that are offered to the public in Hong Kong.
As at the end of September 2003, there are seven hedge funds authorised by the SFC.
DEVELOPMENT OF THE PENSION SYSTEM: The Mandatory Provident Fund Schemes (Amendment) Bill 2002 was passed on 12 July 2002. Major amendments include:
Setting up a mechanism to review the minimum and maximum levels of relevant income for the purpose of making MPF contributions:
A review will be conducted at least once every four years
The minimum income level for MPF contribution purpose will be adjusted from HK$4,000 to HK$5,000 per month. The maximum income level remains at HK$20,000 per month.
Streamlining the operation:
These include the arrangements regarding employees' contribution holiday, MPF contribution remittance, and notification for cessation of employment.
Introducing measures to step up protection for scheme members:
Failure to rectify the non-enrolment situation/non-payment of contribution after conviction becomes a "continuing offence".
A daily fine can be imposed on employers who fail to make rectification after the first conviction for non-payment.
The prosecution time-bar for non-enrolment and non-payment of MPF contribution changes from six months after the occurrence of the offence to six months after the discovery of the offence by, or coming to the notice of, the MPFA.
The MPFA has embarked on a review of the disclosure of fees and performance of MPF funds to increase transparency and to enhance understanding of MPF products among scheme members, enabling them to make effective MPF investment decisions. Discussions with the industry on this project started in late 2002. The MPFA plans to develop concrete proposals by the end of this year. It will also develop public education programs to promote investment understanding among MPF scheme members and the wider community, as well as to educate them on their rights and responsibilities as consumers and investors.
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Data on MPF as at June 2003:
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Number
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MPF Schemes
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Registered Schemes 48
Approved Constituent Funds 317
Approved Pooled Investment Funds 248
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Enrolment
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Employers 94.2%
Employees 95.6%
Self-employed persons 78.8%
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Total Assets HK$69 billion
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(including assets transferred from the ORSO schemes) (Note 1)
Note: ORSO schemes are voluntary private occupational retirement schemes registered under the Occupational Retirement Schemes Ordinance ("ORSO"), which has been in operation since 1993.
With the introduction of MPF, legislation has been introduced to set out arrangements for the interface of the existing voluntary ORSO schemes with the new MPF System. The arrangement is intended to minimise the interference with existing schemes and avoid upsetting the contractual relationship between employers and employees. An ORSO registered scheme may be MPF-exempted if it meets certain criteria.
Source: Mandatory Provident Fund Schemes Authority
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MPF One-Year Performance (with benchmark) as at end of August 2003:
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Sectors Sector Average No of Benchmark
(%) Funds
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Lifestyle
Lifestyle - (>80% - 100% Equity) 9.83 25 13.30
Lifestyle - (>60% - 80% Equity) 8.95 37 12.20
Lifestyle - (>40% - 60% Equity) 7.69 32 11.10
Lifestyle - (> 20% - 40% Equity) 6.36 28 9.4
Equity
Hong Kong Equity 14.55 23 14.90
US Equity 8.43 8 11.80
Japanese Equity 11.98 3 8.40
Asia ex Japan Equity 17.33 7 17.60
Pacific Basin ex Japan Equity 1.61 1 17.10
European Equity 4.05 5 6.20
Global Equity 6.89 17 10.80
Other Equity 1.77 2 N/A
Bond
Global Bond 6.67 13 7.30
Hong Kong Dollar Bond 0.72 4 3.40
Money Market
Hong Kong Money Market -0.23 10 0.04
US Money Market 0.17 2 1.22
Others
Capital Preservation 0.36 46 0.04
Guaranteed Return 2.21 32 N/A
Source: HKIFA/Lipper/Watson Wyatt/FTSE
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Net Asset Value of Authorized Funds
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Number % NAV* (US$ Million) %
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Hong Kong 91 5 5,350.8 1.6
Jersey 25 1 2,810.5 0.8
Luxembourg 1,003 51 211,165.8 61.7
Ireland 329 17 70,050.8 20.5
Guernsey 76 4 2,471.9 0.7
United Kingdom 54 3 20,854.6 6.1
Other Europe 21 1 11,037.2 3.2
Bermuda 29 1 1,486.7 0.4
British Virgin Island 22 1 883.3 0.3
Cayman Islands 305 15 15,589.2 4.6
Others 10 1 433.4 0.1
Total 1,965 100 342,134.2 100
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Source: Securities and Futures Commission
Cross border distribution
Offshore funds can be marketed in Hong Kong as long as they obtain SFC's authorisation. Funds authorised in Hong Kong continued to exhibit a strong international flavour.
At the end of March 2003, only 5% of the funds authorised by the SFC were incorporated in Hong Kong. Most funds were domiciled in offshore jurisdictions such as Luxembourg.-Courtesy: MUFAP
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