Hong Kong doubles alternatives allocation in 2015

In anticipation of a volatile investment environment, the Hong Kong Monetary Authority has quickened the pace of its asset diversification and invested close to HK$ 10 billion in private equity and real estate in 2015.

The Hong Kong Monetary Authority Exchange Fund, which manages Hong Kong’s foreign exchange assets, has said it doubled private equity and real estate investments to HK$ 9.7 billion ($1.3 billion; €1.1 billion) in 2015.

The market value of its investments in private equity and real estate, held under its Long-Term Growth Portfolio, totalled HK $142.1 billion at the end of 2015, it said in its latest annual report. More than 60 percent of the total or HK$ 91.3 billion was invested in private equity and HK$ 50.8 billion in real estate, while the fund’s outstanding investment commitments amounted to HK$122.4 billion.

Among its investments, HKMA has committed capital to CVC European Equity Partners VI, according to PEI Research & Analytics.

Its Long-Term Growth Portfolio posted strong returns last year at 12 percent, compared to its Investment Portfolio (bonds and equities) which recorded a negative two percent IRR and its Backing Portfolio (highly liquid US-dollar-denominated assets) which recorded less than one percent IRR. Overall, the Exchange Fund recorded an investment return of -0.6 percent and an investment loss of HK$ 15.8 billion in 2015.

According to HKMA, the fund ramped up asset diversification last year to mitigate its investment losses. It said it has been diversifying part of the Exchange Fund’s investments in a “prudent and incremental manner” into a greater variety of asset classes, including private equity, overseas investment properties, and emerging market and Chinese mainland bonds and equities.

In January this year, HKMA launched a separate vehicle dedicated to investments in private equity and real estate. The HK$ 220 billion Future Fund will invest about half of its funds into the asset classes over a three-year period, as reported by Private Equity International. It will use a portion of Hong Kong’s fiscal reserves and 25-33 percent of the annual budget surplus to invest for the Future Fund.

In 2015, it paid HK$ 300 million to external asset managers, who manage just about 24 percent of the Exchange Fund’s assets.

The fund’s total assets reached HK$ 3.4 trillion at the end of 2015.