HKMA Exchange Fund upbeat on China, Asia PE

Hong Kong's $514 billion government reserve fund stresses the importance of consistent deployment in the private equity market for long-term gains, after it recorded a 5.2% investment return in 2023.
HKMA Exchange Fund upbeat on China, Asia PE

Hong Kong Monetary Authority’s (HKMA) Exchange Fund is positive on the long-term potential of China's private equity market, given the economy’s huge size and importance in the global economic landscape, a senior executive from the fund said.

The mega government fund said the Asia private equity market is a key market for it to generate decent returns and diversify the portfolio.

It will continue to deploy capital to high-quality general partners (GPs) and maintain its private equity allocation despite a high interest rate environment.

“We have continued to deploy capital despite everything that's happened in the world in the last three years. We continue to commit to high-quality GPs,” said Samson Wong, chief investment officer for private markets of the Exchange Fund at HKMA.

Samson Wong, HKMA

Despite the elevated interest rate environment in many developed markets, most sovereign investors and other large asset owners in the region haven’t cut private equity allocation as of this point, Wong told a panel at the Asia Private Equity Forum in Hong Kong last week.

He did however acknowledge that deployment has slowed down for everyone, including the Exchange Fund.

Higher interest rates increase the borrowing cost of private equity firms as well as portfolio companies, drag down valuations and create a tough exit environment. As such, limited partners (LPs) could pull back from private equity commitments if the public market is more attractive, resulting in slower fundraising.

“In terms of private equity, our view is its performance in the long term will continue to outperform the public market,” Wong said, stressing that HKMA is a long-term investor and never tries to time the market.

“We always have the philosophy that consistent deployment is the best way to invest in private equity,” he said.

Wong believes in diversification in both the strategies and geographies the fund invests in.

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Taking the active market activities in Japan and India in the past year, Wong said Asia is a key market for the Exchange Fund to gain decent risk-adjusted returns and diversification benefits.

This includes China, even as foreign investors avoid or pull money out of the market.

"China has alwasy been an important part of the Asian private equity market....We take a long-term view on that one," said Wong.

“There's so much innovation and opportunities from a private equity standpoint that I think will generate good returns, especially in the current valuation environment."


Wong made the remarks on the same day when HKMA announced the Exchange Fund’s 2023 performance on January 26.

In 2023, the Exchange Fund recorded an investment return of HK$212.7 billion, or 5.2%. Its assets under management (AUM) increased by HK$9.8 billion from a year earlier to HK$4.02 trillion ($514.4 billion) by end-2023.

The long-term growth portfolio, which consists of private equity and real estate investments, had an annualised internal rate of return of 11.8% since its inception in 2009 up to the end of September 2023, or a return of HK$11.5 billion.

The long-term growth portfolio accounted for about 12.5% of the total AUM. The market value of investment and undrawn commitment of the portfolio totalled HK$503.1 billion and HK$297.3 billion respectively. 

In 2023, bonds were the best performing asset class with a record-high return of HK$144 billion, driven by higher interest income from rising bond yields, particularly on short-term bonds, an HKMA spokesperson told AsianInvestor.

This is followed by other equities besides Hong Kong, which gained HK$73.2 billion. On the flipside, Hong Kong equities were the worst performing asset class, losing HK$15.5 billion last year.

Investment Return of the Exchange Fund (1994 to 2023) (Source: HKMA)


Eddie Yue, HKMA

Looking ahead in 2024, Eddie Yue, HKMA’s chief executive said although markets in general expect the interest rate hiking cycle to be over soon, the time required for inflation to return to the target levels set by major central banks remains uncertain.

“Should the timing and pace of interest rate cuts fall short of market expectations, it may trigger heightened volatility and corrections in asset prices,” Yue said in a statement on January 26.

“Furthermore, the biggest unknown factor remains geopolitical risks,” Yue said, noting the escalation of tensions in situations such as the Russia-Ukraine war, the Middle East conflict and the Red Sea could have a “substantial impact” on the global economy and financial markets.

“2024 is also a key election year as many major elections are scheduled to be held. The outcome of these elections will further increase market uncertainties and pose challenges to the investments of the Exchange Fund,” he added.

Exchange Fund Abridged Balance Sheet (in HK$ billion) (Source: HKMA)

He said the HKMA will continue to manage the Exchange Fund with prudence and flexibility, implement appropriate defensive measures, and maintain a high degree of liquidity, while continuing investment diversification for higher long-term investment returns.

"To enhance liquidity, for instance, we explore measures such as keeping more cash and shorter dated money market products, to ensure that there is sufficient liquidity in our portfolio to support our mandates of maintaining the financial and monetary stability of Hong Kong," the spokesperson said.

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