Hong Kong’s Future Fund likely to have fallen short of investment target

A major fund set up a year ago to generate higher investment returns for government fiscal reserves might not have performed as well as hoped in its first 12 months due to lower-than-expected yields and low interest rates, Hong Kong’s top financial official has warned.

Acting Financial Secretary Chan Ka-keung did not provide figures on Tuesday as he gave lawmakers a heads-up on the performance of the “Future Fund”, which is designed to help cushion any deficits to come.

Chan said the investment returns from the Exchange Fund – the reserve used to defend the Hong Kong currency peg to the US dollar – were lower then expected, averaging around 3 per cent per annum, instead of the expected 5 to 6 per cent in the last few years.

Before the establishment of the Future Fund, advisers to then finance minister John Tsang Chun-wah used a threshold of 5 per cent annual investment return – also the expected return rate for the Exchange Fund – to promote it. At that rate, the Future Fund was expected to reach HK$510 billion by 2026.

The Future Fund was established on January 1, 2016, with an initial injection of HK$219.7 billion and a HK$4.8 billion top-up in July. It was expected to yield returns on par with or higher than the Exchange Fund to sustain it and tackle anticipated increasing expenditure.

“The reason for the lowered expectation is because of the slowdown in the global market,” Chinese University academic Chong Tai-leung said. “It’s difficult to find an investment that returns 5 or 6 per cent right now.”