The Hong Kong authorities are pumping fresh funds into the territory’s sovereign investment fund to boost the tech sector at a time when it is experiencing a rapid brain drain.
The FY2022/23 budget allocates an extra HK$10 billion (US$1.3 billion) to the Hong Kong Growth Portfolio under the Future Fund (FF). The Hong Kong Growth Portfolio was announced last February for the FY2020/21 budget and aims at enhancing the FF’s investment returns and consolidating the city’s status as a financial, commercial and innovation center.
Half the new funds be allocated to a GBA Investment Fund and the remaining HK$5 billion (US$650 million) will be used to set up a Strategic Tech Fund to focus on investment opportunities in the Greater Bay Area and invest in technology enterprises and projects. The move is one of several measures to support R&D, which also include HK$440 million (US$56 million) for 16 State Key Laboratories, HK$10 billion (US$1.3 billion) to further promote the development of health tech, and injecting HK$200 million (US$26 million) into the Green Tech Fund.
The new pots of money announced in the latest budget go further in trying to claw back some of the competitiveness lost amid a turbulent point 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, including the LTGP, does not invest in Hong Kong due to potential conflicts of interest and linking savings too closely with the domestic economy.
The territory’s administration started earmarking funds for a Hong Kong growth portfolio in the 2020/21 budget, seeded with the equivalent of 10% of the Future Fund’s assets and totalling HK$22 billion (US$2.8 billion) to support its strategic and political objectives. The growth portfolio is focused on diversification and supporting Hong Kong’s status as a financial, commercial and innovation centre.
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.
HKMA’s approach mirrors that of Singapore’s Temasek, which announced last October that it is planning to pour S$1 billion per year (US$740 million) into deep-tech innovation in Singapore, in addition to the government’s S$25 billion (US$18.5 billion) Enterprise 2025 plan for tech development. Investment will cover life sciences, foodtech and advanced manufacturing and is intended to position Singapore as a global hub for tech and innovation, in a similar way as it has reinvented itself in the past in shipping, oil refining, petrochemicals and manufacturing. Hong Kong sees the need to raise its game in order to match Singapore’s growing strength, although the HKMA lacks Temasek’s experience in venture capital and private equity.