LegCo Subcommittee on MPF System
Information Note
Investment - An Overview

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Purpose

This paper gives an overview of the information notes on investment of MPF schemes.

The Investment Management Function

2. It is established market practice that trustees of retirement schemes delegate the investment function to professional investment management companies. Trustees may also use pooled investment vehicles which include unit trusts/mutual funds and deposit administration policies marketed by insurers. It is quite common to find a trust company to use pooled investment vehicles offered by its associated investment management companies or insurers.

3. In drawing up our proposals, we have built upon the best industry practices in the investment management of retirement funds as well as existing regulatory frameworks for pooled investment schemes which are of relevance. The proposals cover the various investment arrangements and will provide sufficient flexibility for the investment managers to perform to achieve the retirement objectives. On the other hand, we have put into place sufficient safeguards to ensure security of scheme assets.

4. This approach will obviate the need for a large MPF Authority. The MPF Authority will concentrate on overall monitoring of trustees, who, will, in turn, be responsible for appointing suitable investment managers who will invest in the best interests of scheme members in accordance with the prescribed standards and guidelines.

5. Detailed proposals relating to the above areas have now been developed. They are discussed in the following four papers :

(a) Investment Restrictions and Guidelines - a comprehensive summary of investment restrictions and guidelines for MPF investments.

(b) Pooled Investment Vehicles - the use of unit trusts/mutual funds and insurance policies for MPF investments, the investment guarantee and reserving requirements, and the product approval arrangements.

(c) Investment Management - the regulation of investment managers, the investment conduct and the statement of investment policy and objectives.

(d) Separation of Assets - the restrictions on loans and investing in securities of the employer and its associates and measures on protection of scheme assets.

Security of Scheme Assets

6. In our previous information note - "Basic Approach of the MPF System : Security of Scheme Assets", we provided a summary of the building blocks in our system to safeguard MPF scheme assets -

1. Built-in Features of the MPF System
   1. trust arrangement
   2. qualification of service providers
   3. internal control in scheme management
   4. investment standards and restrictions
   5. regulation of investment management
   6. transparency of investment operation
2. Supervision and Monitoring
   1. the MPFA
   2. the auditing
   3. whistle blowing by service providers
   4. self-policing by employees
3. Safety Net
   1. capital requirements
   2. performance guarantees
   3. professional indemnity insurance
   4. compensation fund

7. The proposals in the four papers listed in paragraph 5 above will be part of the building blocks in (a)(i), (a)(ii), a(iv), a(v) and a(vi) above.

Mandatory Provident Fund Office
Financial Services Branch
26 November 1996
[Ref.: Paper/MPF/SC-6]

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