The Hong Kong Monetary Authority Investment Portfolio is an investment portfolio managed by the Hong Kong Monetary Authority, the sovereign wealth fund of the Hong Kong Special Administrative Region (SAR).
Understanding the Hong Kong Monetary Authority Investment Portfolio (HKMA)
The investment portfolio is one of two segments within the Hong Kong Monetary Authority’s Exchange Fund. Additionally, the Exchange Fund manages a backing portfolio designed to support the Hong Kong Currency Board, with investments primarily in highly liquid U.S. government securities. As of 2021, the investment portfolio boasted $580.54 billion in assets, ranking it as the 4th largest sovereign wealth fund globally.
The Hong Kong Monetary Authority
Founded on April 1, 1993, through the merger of the Office of the Exchange Fund and the Office of the Commissioner of Banking, the Hong Kong Monetary Authority serves as the region’s currency board and de facto central bank. The Authority reports directly to the financial secretary and operates under the mandate of the Exchange Fund Ordinance to ensure currency and banking stability, promote efficiency, and foster development within the financial system.
Management of Assets
The vast majority of the Exchange Fund’s assets are managed internally, including the entire backing fund and a portion of the investment portfolio. Equity portfolios and other specialized investments, however, are managed by external managers. The investment benchmark of the Exchange Fund is a composition of 75% bonds and 25% equities.
Detailed Allocation of the HKMA Investment Portfolio
The HKMA investment portfolio predominantly comprises investments in bond and equity markets of OECD (Organisation for Economic Co-operation and Development) member countries, with a target allocation of 73% bonds and 27% equities. The currency mix aimed at is 89% assets denominated in USD and HKD, with the remaining 11% in other currencies.
Investment Strategy
The investment process revolves around strategic and tactical asset allocations. The strategic asset allocation, reflecting in the investment benchmark, represents the ideal long-term allocation aligning with the Exchange Fund’s objectives. Guided by this, assets are tactically allocated to achieve returns exceeding the benchmark. Consequently, the actual allocation frequently diverges from the strategic benchmark.
Related Terms: central bank, sovereign wealth fund, OECD, currency board, financial system.
References
- Sovereign Wealth Fund Institute. “Top 100 Largest Sovereign Wealth Fund Rankings by Top Assets”.
- Sovereign Wealth Fund Institute. “The Exchange Fund of Hong Kong Special Administrative Region (HKMA IP)”.
- Hong Kong Monetary Authority. “History”.
- Hong Kong Monetary Authority. “HKMA Annual Report 2019”, Page 263.
