HK Exchange Fund increases alternative investments

The total market value of private equity and real estate investments made by the Hong Kong Monetary Authority via the Long-term Growth Portfolio increased to $22bn in 2016.

The total market value of investments under the Hong Kong Monetary Authority’s Long-Term Growth Portfolio (LTGP), the government-run portfolio that is invested primarily in private equity and real estate, stood at HK$174.9 billion ($22 billion; €21 billion) at the end of 2016, the city’s de-facto central bank said on Wednesday. This represents a marked increase from the HK$139.3 billion investments recorded in 2015.

According to the 2016 financial results of the Exchange Fund – Hong Kong’s reserve fund used to back the currency –  private equity investments made via the LTGP totalled HK$112 billion last year, while real estate investments amounted to HK$62.9 billion. Outstanding investment commitments for the two asset classes combined was HK$133.8 billion.

In the first nine months of 2016, ‘other investments’, the term used by the Exchange Fund for private equity and real estate investments, posted a gain of HK$10.2 billion, higher than the HK$8.3 billion in same period last year.

However, in terms of investment performance, the numbers were lower than the previous year. According to the HKMA statement, the LTGP recorded an annualised since-inception internal rate of return of about 10.9 percent as at December 2016, down from the 12 percent recorded in the same period in 2015.

Calling the overall performance of the LTGP as satisfactory, Norman Chan, chief executive of the HKMA, said that expanding investments under the LTGP was part of the series of defensive measures deployed in the past two or three years in the view of the worsening external investment environment.

Meanwhile, the Exchange Fund posted an overall investment income of HK$61 billion in 2016, a sharp turnaround from the HK$18.3 billion investment loss recorded in 2015. The HKMA statement attributed this improvement to the gains made on private equity and real estate investments, as well as Hong Kong equities, other equities and bonds. 

Sharing his outlook for 2017, Chan said the global political and economic environment remains highly complex and unpredictable.

“In the face of the continued complex and difficult investment environment, we will adopt a combination of both prudent and proactive strategies,” he said. 

“While continuing to implement defensive measures, we will expand investments under the LTGP with a view to minimising the shocks brought by short-term market fluctuations and achieving better returns for the Exchange Fund in the medium to long term.”

As of end-December 2016, the Exchange Fund had HK$3.63 trillion worth of assets.