The Hong Kong SAR government is seeking to turn its back on a turbulent period with efforts to entice investors, including the establishment of a HK$30 billion (US$3.82 billion) a co-investment fund, under a new Hong Kong Investment Corporation (HKIC).
In his maiden policy address, the new Chief Executive John Lee announced the launch of the new investment firm, which will also manage the Hong Kong Growth Portfolio, the Strategic Tech Fund announced in July and the Greater Bay Area (GBA) Investment Fund under the Future Fund.
The Future Fund (FF) is the territory’s sovereign wealth fund, which was founded in 2016. In 2020, it launched the HK$22 billion Hong Kong Growth Portfolio focusing on boosting Hong Kong’s competitive edge in finance and innovation.
The FF’s assets sit within the Exchange Fund (EF), which is overseen by the Hong Kong Monetary Authority (HKMA), the territory’s central bank. The EF largely invests in external assets with 60% of the Future Fund’s assets placed into its long-term growth portfolio (LTGP), which invests in private equity and real estate. Its average annual investment return over 2015-21 was just 4.2%, putting it well behind most of its peers.
The tech fund seeks to claw back some of the competitiveness lost amid a turbulent period in Hong Kong’s history. Strategic investments aim to bring benefits to the territory’s economy. This is a departure from the established practice that the EF does not invest in Hong Kong due to potential conflicts of interest and linking savings too closely with the domestic economy.
On Thursday, financial secretary Paul Chan Mo-po said applicants for the growth fund would be assessed on capital investment, employment potential, investment returns and their strategic importance to Hong Kong’s development. He said, “This time we break free of the traditional thinking as we will have active planning and be aggressive to take our best shot to push for industry development.”
Chan is set to lead the new HKIC, which is said to be modelled on Singapore’s Temasek and is targeting life sciences, new renewable energy, new materials and advanced manufacturing. The returns of the investments by the HKIC would be re-invested.
It is seen as a departure from the free market approach traditionally taken by the territory. Chan said, “The purpose of the co-investment fund is to support our vision in our economic development. Instead of doing it from scratch ourselves, I think it’s more effective for us to attract those leading companies to come to Hong Kong to set up their operations here.”