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Hong Kong’s $460bn Exchange Fund eyes infrastructure

The territory’s de-facto central bank launched a platform in July to facilitate infrastructure financing in countries covered by Beijing’s ‘One Belt One Road’ initiative.

The Hong Kong Monetary Authority is considering making infrastructure investments from the Exchange Fund, the vehicle responsible for supporting the territory’s currency. 

The HKMA is reviewing proposals for infrastructure investments and aims to conclude deals in the coming months, the authority’s executive director Vincent Lee told Bloomberg. Lee said the fund could invest in infrastructure debt, equity or physical assets, adding that the low-yield environment has urged investors to look into alternatives.

A HKMA spokesperson told Infrastructure Investor that the institution would be open to investing in infrastructure projects, depending on market conditions and investment opportunities. He declined to comment on the details of the authority’s investment strategies.

The Exchange Fund, which had total assets of HK$3.57 trillion ($460 billion; €414 billion) as of 30 September 2016, started seeking exposure to alternatives in 2009 in a bid to diversify away from stocks and bonds in OECD markets.  

Under a strategy labelled Long-Term Growth Portfolio (LTGP), HKMA invests a portion of the Exchange Fund in global private equity and overseas real estate. At the end of 2015, it had committed HK$91.3 billion to private equity and HK$50.8 billion to real estate, according to its annual report. 

In January this year, the Hong Kong government set up the HK$219.7 billion Future Fund in a bid to generate higher investment returns from its fiscal reserves. The fund planned to allocate half of its capital to invest alongside the Exchange Fund’s LTGP in private equity and real estate over a 10-year investment period. 

It is unclear whether the Exchange Fund and the Future Fund’s respective portfolios already have exposure to infrastructure. The spokesperson declined to comment. 

In July, the HKMA launched the Infrastructure Financing Facilitation Office, a platform that aims to facilitate infrastructure equity and debt investments in projects developed under the China-led “One Belt One Road” initiative. The IFFO is now backed by 54 entities that include multilateral financial agencies and development banks, commercial lenders, law firms, advisors and institutional investors like BlackRock, Blackstone, Macquarie and the Canadian Pension Plan Investment Board. Lee is the deputy director of the IFFO.