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Following is a question by the Hon Michael Mak and a written reply by the Secretary for Health, Welfare and Food, Dr Yeoh Eng-kiong, in the Legislative Council today (July 2):
Question :
Regarding the Provident Fund Scheme managed by the Hospital Authority ("HA") for its staff, will the Government inform this Council whether it knows:
(a) the rates of return on investment of this Provident Fund Scheme in each of the past two years, the impact of the investment environment on these rates, and how such rates compare to the average rates of return of Mandatory Provident Fund schemes during the same period;
(b) the criteria HA has adopted in selecting the investment manager, and how it monitors his performance; and
(c) if HA will consider appointing several investment managers for selection by individual staff members in respect of their own accounts; if it will, of the details of the relevant arrangements, if not, the reasons for that?
Reply:
(a) The investment horizon of the Hospital Authority Provident Fund Scheme (HAPFS), which is a retirement scheme, is essentially long term. The asset allocation for HAPFS has been so designed to cater for the different risk-return preferences of Scheme members while achieving capital returns over the long term. The Scheme will therefore not seek to maximise the investment return through "timing" the market and changing the investment benchmark frequently. Historically, an investment cycle could be as long as ten years, which is considered a reasonable investment horizon when analysing the historical performance of the market, in order to smooth out the short-term fluctuations. Over the last 10 years, the rate of return of HAPFS ranged from -14.48 per cent in 2002/03 to 28 per cent in 1999/2000, with the average rate of return at 6.04 per cent per year.
The rates of investment return of HAPFS in the 2001/02 and 2002/03 financial years were -0.21 per cent and -14.48 per cent respectively. The negative return of HAPFS in 2001/02 and 2002/03 can largely be attributed to the poor performance of the global equity markets. By way of reference, according to the Morgan Stanley Capital International World Index, equity returns in all developed markets fell by 3.88 per cent in 2001/02 and 23.96 per cent in 2002/03. In this connection, about 70 per cent of the assets in HAPFS are in equities, with the rest in bonds and cash. The negative return in respect of equities in these two years was partly offset by the positive return from investment in bonds and cash.
The rates of return of funds of Mandatory Provident Fund Schemes with comparable asset split (i.e. with 60 per cent to 80 per cent of assets in equities) as that of HAPFS ranged from -6.6 per cent to + 2.7 per cent in 2001/02 and from -14.7 per cent to -10.3 per cent in 2002/03, with the median rates of return at -4.5 per cent and -13.4 per cent respectively.
(b) HAPFS is managed by a Board of Trustees which comprises a Chairman, three Hospital Authority (HA) Board Members, three HA employee representatives and two independent trustees appointed by the HA Board in accordance with the Trust Deed of HAPFS. Normally, if HAPFS needs a new investment manager, the Board of Trustees would retain the services of an investment consultant to conduct a search in their proprietary databases for suitable investment managers and develop a long list of candidates, perform reviews on the identified managers on the long list, and then make a recommendation to the Board of Trustees on the candidates to be shortlisted. In general, candidates are evaluated on the basis of their people, process and performance. While the detailed selection criteria may vary slightly from one selection exercise to another depending on the required style of the investment manager and the type of investment asset the manager is required to manage, they usually focus on the following six areas -
* Organisation - financial backing, stability, profitability of business, funds under management
* Investment process - investment philosophy and approach, consistency, research capability, decision making process, implementation of the decision, risk management and monitoring
* Investment staff - experience, staff turnover, key personnel, continuity and succession plans
* Reporting - transparency, responsiveness, commitment to serving the account
* Performance - track record for similar mandates, risk taken, patterns of out/under-performance, reasons for out/under-performance
* Other conditions - fees, contractual requirements, compliance with the Occupational Retirement Schemes Ordinance
HA monitors the performance of the investment managers of HAPFS on an ongoing basis through the online facilities provided by the master custodian appointed by the Board of Trustees and through the regular reports prepared by the investment managers. It should however be noted that the investment managers are not assessed by its short-term performance. HA would look at their performance over a complete business cycle, typically around three years, so as to ensure that the assessment is unbiased and that any external factors that may have affected the performance are taken into account.
(c) Currently, HAPFS is managed using a "specialist" approach, whereby investment managers who are "the best " for managing an investment asset for a particular region or sector will be selected. Depending on the size of the asset class, two or more managers may be appointed. In such cases, the managers selected will have styles complimentary to each other (for instance, growth biased as against value biased) to fit the Scheme's overall risk budget. There are at present 17 investment managers managing the assets of HAPFS. Since the asset split under HAPFS is determined by the Board of Trustees and not subject to the choice of individual Scheme members, the account of each Scheme member is in effect managed by all 17 investment managers. HA intends to give Scheme members a choice of different investment funds with different risk profile starting October 2003. This notwithstanding, the Scheme will continue to be managed using the "specialist" approach.
Ends/Wednesday, July 2, 2003
Issued at HKT 15:20
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