Hong Kong’s Future Fund to lift alternatives exposure to boost returns

Hong Kong’s sovereign wealth fund is seeking to substantially lift its exposure to alternative asset classes to maximise returns.

The Future Fund, set up in 2016, has HK$224.5bn (€25bn) under management for “placement in longer-term asses with a view to securing higher returns”.

During his budget speech this week, Hong Kong’s financial secretary, Paul Chan, said that in the first two years of operation, the Future Fund had achieved a composite rate of return of 4.5% in 2017 and 9.6% in 2018.

“To further optimise the use of the fund, I will invite several experienced persons in the financial services sector to advise me on the fund’s investment strategies and portfolios to achieve more diversified investments,” he said.

Chan said the objective was to enhance returns while also consolidating Hong Kong’s status as a financial, commercial and innovation centre, and raising Hong Kong’s productivity and competitiveness in the long run.

A government spokesman told IPE Real Assets that the financial secretary had invited several leaders from the financial services and business sectors to make recommendations on the investment strategies and portfolios of the Future Fund.

“More than 50% of the Future Fund may be set aside for placement with Hong Kong’s Exchange Fund’s Long-Term Growth Portfolio (LTGP),” the government spokesman said.

This consists of alternative assets, such as private equity and real estate.

In October last year, the deputy chief executive of the Hong Kong Monetary Authority (HKMA), Eddie Yue, wrote in its HKMA’s Insight publication that the Exchange Fund had recently started investing in infrastructure projects under the LTGP.

Exchange Fund is the investment vehicle of HKMA, the special administrative region’s central bank.

It has oversight of Hong Kong’s HK$4.18trn foreign reserves.

A year-end report showed that by the end of September last year, the Exchange Fund had invested HKD190.9bn in private equity and HK$87.4bn in real estate.

According to its year-end report, the Exchange Fund’s assets were invested mostly in deposits (HK$326bn), debt securities (HK$2.83trn) Hong Kong equities (HK$175.5bn), other equities (HK$456.9bn) and other assets (HK$274.8bn).