Hong Kong’s Future Fund allocates 50% to alternatives

The HKD 220 billion fund will invest in private equity and real estate working with established managers in mature markets, including North America and western Europe, and certain emerging markets.

The Hong Kong Monetary Authority (HKMA) has launched a new HKD 220 billion ($28.4 billion; € 25.9 billion vehicle that will invest about half of its funds into private equity and global real estate over a three-year period.

The Future Fund will use a portion of Hong Kong’s fiscal reserves and 25-33 percent of the annual budget surplus to invest in alternatives under the government’s Long-Term Growth Portfolio (LTGP), according to a statement.

The fund was revealed in last year’s budget announcement to hedge against potential budget deficits and to prepare for the financing needs of Hong Kong’s future generations.

It will be managed by HKMA’s investment team and target high investment returns in line with LTGP’s strategy that is to predominantly invest in mature markets, including North America and western Europe, with a small exposure to certain emerging markets.

HKMA said it has been gradually increasing its allocation to Asian markets under the LTGP in recent years, especially in more mature private equity and real estate markets in Australia, Japan and China.

According to HKMA, its strategy is to have a “nimble and capable in-house investment team underpinned by the support of external investment managers”. It added that its investment team will ensure it has adequate professional staff to manage investments under the portfolio.

It will work with established general partners to source and recommend deals and carry out daily asset management and monitoring duties.

In December, Eddie Yue Wai-man, HKMA deputy chief executive, said that the funds invested the first ten months of 2015 reached some $9 billion compared to $5 billion in the previous year.

Hong Kong’s chief executive CY Leung also announced a HKD 2 billion Innovation and Technology Venture fund to support investments in start-ups. Under the fund, the government will co-invest with private venture capital funds and match them with local technology start-ups.