Hong Kong Exchange Fund reported an investment income of HK$75.9 billion ($9.8 billion) last year, the second-lowest in five years, according to a statement posted on the Hong Kong Monetary Authority website.
Investment income for the fund, set up by the government 16 years ago, fell 32 percent from the HK$111.6 billion in 2012, according to the statement today. Investment return slipped to 2.7 percent, against 4.4 percent a year earlier.
The HK$3 trillion fund, which invested about 69 percent of its assets in debt last year, is trying to boost long-term return as expected tapering of monetary stimulus in the U.S. casts shadow over global interest rates. The fund generated average return of 5.4 percent since 1994, with the rate falling to 3.5 percent over the last five years and 2.7 percent over the last three, according to the statement.
“There remain uncertainties about the sustainability of the economic recovery in the U.S. and Europe, as well as possible outflow of funds from emerging markets, like what we saw in May and June last year,” HKMA Chief Executive Norman Chan was quoted as saying in the statement.
HKMA will “strengthen the defensive position” of the fund’s U.S. bond holdings, and step up diversification in order to improve medium- to long-term returns of the fund, he added.
Hong Kong set up the exchange fund in 1998 to manage the shares the government bought in August of that year in an unprecedented purchasing spree aimed at hurting speculators, who were betting against the city’s stock market and the local currency’s peg to the U.S. dollar.
The fund invests in bonds and stocks denominated in dollar, and other currencies, including the euro, yen, sterling and Hong Kong dollar. It reported a HK$27.1 billion investment income in 2011, the lowest since a loss in 2008, according to the statement.
The fund has sought to bolster its returns by investing in in emerging-market bonds and stocks, assets denominated in the Chinese currency yuan, private equity and real estate since 2008, Chan said today.
Income from non-Hong Kong equity investments surged 67 percent to HK$71.6 billion. It helped cushion a HK$19.1 billion loss from bond holdings last year and a 67 percent drop in investment income from Hong Kong stocks, according to the statement.
Its private equity and real estate investments totaled HK$88.6 billion and had an annualized internal rate of return of 16 percent since inception, according to today’s statement.