NEW YORK -- For foreign money managers, patience might prove the virtue to capture Asian pension assets.
To succeed in Asia, outside investment firms must show "long-term commitment" to these markets, said Kevin Quigley, vice president, policy and business programs for the Asia Society, a non-profit, non-partisan education group in New York that focuses on Asia and U.S.-Asian relations.
Government pension funds in Singapore, Hong Kong and China are shifting to pension systems that emphasize new defined contribution pieces from pure defined benefit systems that guaranteed almost 100% of a worker's final salary as a pension.
The need to generate higher returns on assets to meet future liabilities is forcing each system to consult with outside money managers and pension experts.
Mr. Quigley recently returned from a study mission of pension funds to the two city states and Shanghai, China. In an interview, he said the pension systems of the three Asian nations will "over time open for private fund managers to play a greater role."
The problem the pension systems have is coverage and generating sufficient returns, he said. And they are all -- to varying degrees -- in the process of reinventing their systems.
The potential success of each country's revised plan hinges upon their similarities and differences, he said. Each will rely on the three pillars: contributions from the worker, the employer and the government.
Each is in the process of reducing the sizes of pensions, which have been based on the last years of workers' wages, each is emphasizing defined contribution systems and each has problems with coverage, he said.
Each also faces different cultural hurdles. In Singapore, almost 85% of elderly people live with a child, thus reducing the cost of retirement. In Hong Kong, that number is practically reversed.
The study mission, which took place last month, was sponsored by the Asia Society and Asset International Inc., a Greenwich, Conn.- based publisher. Members included about a dozen money managers, consultants and academics, including Marshall Carter, chairman and chief executive officer of State Street Bank and Trust Co., Boston; Stuart Leckie, executive director, The Employee Benefits Forum for China and chairman of actuarial consulting at Woodrow Milliman China Ltd., Hong Kong; and Alice Young, chairwoman of the Asia Pacific practice at Kaye, Scholer, Fierman, Hays & Handler LLP, New York.
Some of the most immediate opportunities for foreign managers are in Singapore as the Central Provident Fund, which had close to $48 billion in 1997, looks for managers. It has seen returns between 2% and 3% in recent years, he said. Fund executives are looking to add to its roster of outside fund managers.
New Hong Kong system
In Hong Kong, the government is trying to get its new pension system, the Mandatory Provident Fund, off the ground. The problem is the government's restrictions on managers, he said. "It's mandatory that the fund invests in bonds and the Hong Kong market."
China has "a huge problem in coverage," he said. Outside insurance companies such as John Hancock Mutual Life Insurance Co., Boston, and Sun Life Assurance Co. of Canada, Toronto, in April were granted licenses by the government to set up joint ventures to sell life insurance to individuals.
But they stand to make little impact in the local markets. American International Group Inc., Mr. Quigley said, was the first insurer to get a license in Shanghai in 1992, and issues less than 1% of life insurance policies.
The Asia Society's report on its mission to Singapore, Hong Kong and Shanghai will be on its Web site by Sept. 1. The Web site address is www.asiasociety.org.