HONG KONG -- Hong Kong's retirement fund managers had one of their worst years in recent history in 1997, an annual pension performance survey shows.
Hong Kong pension funds registered an annual median return of -7.3% because of the Asian markets crisis, according to the survey's independent assessor, Watson Wyatt Hong Kong Ltd. Funds posted a positive 16% median return a year earlier.
The "Measurement of Investment Performance Survey for Hong Kong Retirement Schemes," known as the MIP Survey, collated results from 327 globally balanced portfolios run by 39 management firms and worth a total of HK$60.8 billion (U.S.$7.89 billion) in the Special Administrative Region of Hong Kong. This covers about 70% of the assets under external management in Hong Kong retirement schemes as of Dec. 31.
Managers' showing for their globally balanced accounts for pension funds ranged from a high of 16.9% to a low of -34.1%.
Of the major 26 firms included in the survey, 20 posted losses ranging between 0.6% and 34.1%, with only six managers showing positive performances.
The highest return for 1997 went to Scudder Stevens & Clark Asia, whose globally balanced portfolio gained 16.9%. Conversely, the fund manager with the largest negative of the year was Indocam, which registered an annual return of -34.1%. The five remaining managers that clawed gains in an overwhelmingly negative environment were: J.P. Morgan, 9%; Principal Insurance, 6.7%; LGT Management, 5.6%; Morgan Grenfell, 2.4%; and Rothschild Asset Management, 0.9%.
Watson Wyatt blamed the Asian crisis for the disastrous results. In its report, the firm said the first three quarters of the year looked promising, but all that was forgotten in the fourth quarter, when the Hong Kong market fell significantly and wiped out gains made earlier in the year. As a result, most schemes ended the year with negative returns.
However, the firm pointed out, over the three-year period, the median return remains ahead of the CPI but behind salary inflation. Over an even longer period, investment returns have exceeded wage inflation.
Last year's fourth-quarter returns reflected several factors: the worsening of the Asian crisis and its sudden impact on Hong Kong from speculative attacks on the Hong Kong dollar -- including the effect of higher interest rates needed to support the currency.
Interest rates were twice hiked, which, in turn, depressed local equity and property markets. The Hong Kong market lost 31% in the fourth quarter, wiping out positive returns seen earlier in the year. Markets for the year ended down 27.1%.
Although last year was bad, Naomi Denning, director and head of Investment at Watson Wyatt in Hong Kong, said 1994 was the worst year the firm has recorded in its 15 years of researching the MIP Survey. That year, funds posted a median annual return of -13.1%.
But compared with 1994, Ms. Denning said, "1997 somehow felt more painful to people, as it was not a short, sharp shock but was more prolonged. Also in 1994, the effect -- although worse on paper -- was somewhat cushioned by excellent results in 1993 -- a return of over 80%."
The major lesson for Hong Kong money managers in 1997 was the need to establish firmer benchmarks, Ms. Denning said.
"There's a very real need to set up benchmarks and to have a sense of discipline when the markets get high and to buy back when markets drop -- that's why a lot of people were burnt last year," she said.
"These don't have to be formal benchmarks, they could just be disciplined limits used as a guideline by managers, but it could make all the difference between a returns loss or a gain."