The Hong Kong government is drawing down HK$22 billion (US$2.82 billion) from Future Fund, its sovereign wealth fund, to establish a new portfolio which will focus on domestic investments, possibly including non-mainstream assets such as private equity.
Hong Kong Financial Secretary Paul Chan made the announcement on February 26 in his budget speech for the 2020/21 fiscal year that begins April 1.
He says the new Hong Kong Growth Portfolio is aimed at enhancing the Future Fund’s investment returns and consolidating the city’s status as a financial, commercial and innovation centre, and to raise its productivity and competitiveness in the long run.
“We must make good use of the Future Fund to continuously invest for the future of Hong Kong,” he says.
According to Mr. Chan, the move to create the portfolio was made on the recommendation of the Group of Experienced Leaders, an advisory group for the Future Fund’s investment strategies.
He says the group had suggested that 10% of the HK$220 billion Future Fund’s assets be allocated to the portfolio, for investment in “companies, projects or funds with a Hong Kong nexus that could benefit our economy while generating reasonable risk adjusted return”. The advisory group also suggested including two to three private equity and venture capital mandates.
Mr. Chan did not say when the portfolio will be launched.
According to Darren Bowdern, a partner and head of alternative investments at KPMG China, the Future Fund will likely raise its allocation to alternative assets such as private equity and venture capital since the government is promoting the city as a hub for private equity.
“However, it is too early to know whether the [portfolio] will have a preference for investing into private equity funds or venture capital funds domiciled in Hong Kong, although I suspect it will be broader than that,” Mr. Bowdern tells Asia Asset Management (AAM).
He believes the Future Fund may be aiming for “high-single to low-double-digit” returns, balancing the return expectations with its risk appetite over the longer term.
Established in 2016, the Future Fund posted an annual return of 4.5% the following year, 9.6% in 2018, and 6.1% in 2019.
Meanwhile, Mr. Chan says the government is planning to sell HK$66 billion of green bonds over the next five years in a move to “further consolidate and develop Hong Kong’s position as a premier green hub in the region”.
Chaoni Huang, vice president and secretary general of the Hong Kong Green Finance Association, and executive director and head of sustainable capital markets APAC at BNP Paribas, notes that the government first announced a HK$100 billion green bond programme in the 2018-19 budget.
The HK$66 billion of bond sales over five years announced by Mr. Chan “reaffirms the government’s continuation of this issuance plan under the existing green bond programme”, Ms. Huang tells AAM.