HONG KONG - The Mandatory Provident Fund legislation requires that investment funds created to meet the needs of the new retirement schemes must observe Hong Kong law. However, it does not say where the funds must be domiciled.
The majority of Hong Kong pension funds now are domiciled in Bermuda, said an industry source.
But will offshore bases be acceptable to the People's Republic of China, when it takes control of Hong Kong in 1997?
The subsidiary legislation, to be issued in the next two years or so, should clarify which domiciles are acceptable for the funds.
This is "quite a political issue, too sensitive to answer," said Desmond Chan, director, Jardine Fleming Investment Management Service, Hong Kong.
Citibank Global Asset Management has domiciled its funds complying with the 1993 Occupational Retirement Scheme Ordinance in the Cayman Islands.
Also in Cayman are three pools launched by Barclays de Zoete Wedd Investment Management Hong Kong. Alan Liu, BZW director, believes that as long as the funds are subject to Hong Kong law, they should be acceptable.
"It could turn out to be a political issue, but we fund managers are more concerned about the benefits of employees. If people are concerned about 1997, they may prefer to hold assets overseas. Quite a few Hong Kong pension funds have such funds overseas," he said.
Richard Darke, managing director, institutional funds with Fidelity Investments, Hong Kong, said most funds are domiciled in Bermuda, so their records are not in Hong Kong. Therefore, there is little likelihood of political risk. In the future, funds will have to comply with the laws of the Special Administrative Region, which Hong Kong will become.
"It is quite reasonable that local laws should apply" under these circumstances, he said.