Hong Kong's Future Fund to make direct investments
Hong Kong’s Future Fund, a vehicle intended invest budget surpluses to cover future liabilities arising from an aging population and slower economic growth, will make a 10% allocation to direct investments that support the local economy.
The fund was established in 2016 and seeded using HK$219.7 billion ($28 billion) generated from government land sales. With a portion of annual budget surpluses to be contributed as periodic top-ups, the goal was to create a pool of HK$510 billion by 2023-2024. As of March 2019, it had HK$224.5 billion in assets, having received some of the 2016-2017 surplus.
Paul Chan, Hong Kong's financial secretary, said in his budget statement that a growth portfolio would be established for direct investments in projects with a "Hong Kong nexus." A 10% allocation suggests up to HK$22.5 billion will be deployed.
The growth portfolio was one of several recommendations made by a panel led by Victor Fung, group chairman of Hong Kong multinational Fung Group and a longstanding participant in the local private equity industry. The panel was convened to advise on the Future Fund's investment strategy and portfolios, with a view to enhancing returns while reinforcing Hong Kong's status as a financial, commercial and innovation center.
Chan added that the fund has generated returns of 4.5%, 9.6% and 6.1% in its first three years of operation.
The Future Fund is currently overseen by the Hong Kong Monetary Authority (HKMA) and held within its Exchange Fund, which is tasked with affecting the exchange value of the Hong Kong dollar in order to maintain monetary and financial system stability. Half of the Future Fund's assets are said to be in the Exchange Fund's long-term growth portfolio (LTGP), a vehicle with most of its assets deployed in private equity.
As of year-end 2018, the Exchange Fund had HK$4 trillion in assets and the LTGP had a market value of HK$283.6 billion. Of this, HK$191.1 billion was in private equity and HK$92.5 billion in real estate. The annualized IRR on the LTGP since its inception in 2009 was 12.9%.
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