Hong Kong’s Mandatory Provident Fund ( MPF ) delivered its highest recorded earnings with total assets hitting HK$1.47 trillion ( US$188.4 billion ) and average member balance at HK$307,500.

For August 2025, the pension scheme delivered a year-to-date return of 11.85%, driven largely by a 26.56% surge in Hong Kong and mainland China equities.

The MPF's August performance index rose 1.56%. This translates into HK$22.6 billion in investment gains for the month ( about HK$4,717 per member ), or HK$155 billion year-to-date – the highest eight-month record on file. Assets have swelled by HK$183.2 billion so far this year, fuelled by strong equity markets, particularly in Japan and Hong Kong/China overall.

The data paints an optimistic picture, emphasizing sustained positive months since 2017. But for investors, this is a reminder that high returns often come with dependencies on specific markets, like the concentration in Hong Kong and mainland equities, which could expose portfolios to regional volatility.

While this sounds like a win for retirement savers, for long-term investors, sustainability hinges on managing risks and avoiding the temptation to chase short-term highs.

Equity outperformance

The MPF’s impressive performance in equities modestly outperformed the Hang Seng Index ( HSI ), which posted YTD gains of 20-25%. This suggests that some strategic allocation or active management added value to the MPF performance versus the broader HSI.

This equity performance was also standout when compared to that of other regional stock markets. The MSCI All Country Asia ex-Japan index, the benchmark index for the iShares ETF, posted a YTD return of 19.79% for August.

This indicates that the MPF isn't just passively tracking markets but also capturing incremental alpha, likely from tilts towards high-performing sectors.

However, analysts say this outperformance is tied to strong tailwinds in Asia, particularly technology and financials. If market sentiment shifts – as a result of geopolitical tensions or an economic slowdown in China, for example – these gains could reverse quickly.

From a risk-adjusted perspective, the MPF's strong YTD performance is built on equity beta, with proxies like the HSI showing historical max drawdowns of 33% and current levels around 23%. This suggests that the HSI’s drawdown level in 2025 is approximately 23% below its all-time high as of mid-2025.

On a Sharpe ratio basis ( around 1.6 for HSI over the past year ), the 2025 performance looks solid in an up market, but MPF members should expect steeper losses in downturns. Investors should consider rebalancing rules to lock in gains, especially if they are nearing retirement.

Volatile markets

MPF's YTD performance, while impressive, is tied to the volatile Hong Kong and China equity markets, as proxied by the HSI. As such, investors should approach these gains with caution, recognizing that the “equity beta” that is driving returns also exposes them to significant downside risk.

Investors should regularly review their MPF allocations, consider their risk tolerance, and consult a financial adviser to ensure their retirement strategy aligns with long-term goals, not just short-term market surges.

In terms of sector and regional allocations, typical MPF funds, particularly those using index-tracking collective investment schemes ( ITCIS ), emphasize broad exposure across sectors and regions.

ITCIS are investment vehicles designed to replicate the performance of a specific market index, such as the HSI or MSCI All Country Asia ex-Japan Index, by holding the same securities in similar proportions. Approved by the MPF Schemes Authority ( MPFA ), ITCIS are a form of passive investment, aiming to mirror the returns and risk profile of the underlying index, rather than actively selecting securities to outperform the market.

ITCIS funds can enhance MPF performance by offering low-cost, diversified, and liquid investment options that capture market gains, as seen in the strong 11.85% YTD return for August 2025.

They also play a role in reducing fees ( 0.84% vs 1.43% for active funds ) and supporting the MPF’s Default Investment Strategy ( DIS ), particularly in the MPF’s Core Accumulation Fund ( 60% equities/40% bonds ) and Age 65-Plus Fund ( 20% equities/80% bonds ).

However, critics say the ITCIS’ market-dependent nature exposes investors to volatility, particularly in concentrated regions like Hong Kong and China, with historical drawdowns up to 33%.

Under the DIS, allocations depend on the age of the investor: from 60% equities/40% bonds in the Core Accumulation Fund, down to 20%/80% in the Age 65-Plus Fund. This means younger investors capture more of the equity upside, while older ones prioritize stability. If an investor’s MPF leans heavily on Hong Kong/China, they should watch for concentration risks in tech-heavy rallies.

Other pension schemes

When compared to other retirement systems, the MPF has a similar market-linked approach to the Australian Superannuation, whose median balanced options returned ~10.1-10.5% for the fiscal year ending June 2025, with growth-oriented funds around ~12%, based on data from SuperRatings.

Compared to Singapore’s Central Provident Fund ( CPF ), which has guaranteed rates of 2.5% ( ordinary account ) to 4% ( special/MediSave ), plus bonuses for older balances, the MPF outperforms in bull markets but lags in a bearish environment. The CPF offers lower volatility but no equity upside.

Malaysia’s Employees Provident Fund ( EPF ) uses a dividend-smoothing approach, which is market-to-market ( returns fluctuate directly with market performance ). The EPF model, backed by a diversified portfolio and a 2.5% minimum guarantee, stands in contrast to the MPF’s market-linked, equity-heavy approach, which could deliver higher returns but is more exposed to market swings.