THE Hongkong AIDS Foundation has lost at least $1 million after dabbling in high-risk foreign currency markets. A document obtained by the Sunday Morning Post showed the foundation ''had already incurred a loss of $1,038,909'' in its Spanish peseta, pound and Canadian dollar investments. Foundation chief executive Mr Frederick Tong yesterday confirmed the loss. He also confirmed the investments were part of the $30 million reserve - or seed fund - donated by the Hongkong Jockey Club and the Government. Mr Leo Lee, an executive board member and convener of its investment sub-committee, said in the December 17 meeting a further $290,000 would be lost if the European Currency Unit (ECU) exchange rate ''continued as at present up to'' last month, making a total loss of more than $1.33 million. Yesterday, the Government pledged to investigate. The Deputy Secretary for Health and Welfare Mrs Shelley Lau said as the foundation was independent of the Government, its executive board and chairman Mrs Peggy Lam Pei Yu-dja should be responsible for its management. She said if the situation was ''found to be blatant and serious'' the Government would pursue the matter. Mrs Lam said the board members were trying to get more money so ''we could do more work''. But she admitted not being ''a finance person'' and had made a wrong investment. ''It is not a wise decision,'' she said, adding that ''everybody [involved in decision making] should take responsibility''. ''As a chairman I have to take responsibility, too. But it is not one person's decision. It is the whole board's decision. ''Our intention was to get more money to do more work.'' Mrs Lam also said critics had not been fair in ''picking on the AIDS Foundation''. ''If you check our account, we have more than $30 million in the bank. We lost there, we gained here . . . whether it is seed money or donations. ''We have got nothing to hide. It is just funny people wanting to criticise and pick on the AIDS Foundation.'' When asked whether she planned to stay on amid criticism, Mrs Lam said: ''This depends on whether people will elect me or not. I have nothing to be ashamed of. I am doing my part. I tried very hard to start the AIDS Foundation and I am still trying very hard. ''If people want me to be the chairman, I will do it. If they have a better choice, by all means. Everybody has the same chance to serve the foundation,'' she said. The decision to become what financial analysts described as a ''major player'' in a high-risk market drew sharp criticism from AIDS campaigners. A spokesman for the voluntary group AIDS Concern said: ''It is a shame. They have wasted money which is meant for saving people's lives.'' The spokesman also accused the foundation of paying more attention to its growth as a ''big political empire'' than working towards helping HIV carriers and AIDS patients. A financial analyst said a charitable organisation ''should not really be taking a speculative position, and foreign currency deposits are speculative - they could have done a lot worse''. Another market analyst said the foundation could have put its seed fund in low-risk investment such as US dollar bonds. Market analysts agreed it would be safe to guess the foundation had been ''large players in the market'', investing from $1 million to $3 million or more. ''They must have been playing with a large amount of money to incur a loss of such magnitude. Their involvement in foreign exchange deposits must have been considerable,'' the financial analyst said. The latest revelation also brings into sharp focus the control and management of funds by charitable organisations in Hongkong. The foundation's memorandum and articles of association stipulate it can invest money not immediately required for its purposes in such ''investments, securities or property as may be thought fit''. But a financial analyst said: ''That basically means they can do lots. The question is why there is an article that can give them such wide-ranging investment power. What if you have somebody sitting on the board who is naive and an amateur in investment?'' The AIDS Foundation, whose patron is the Governor, Mr Chris Patten, is allowed to spend only the interest from the seed money. The foundation said in its 1991/92 annual report that one of its problems was funding as bank interest rates had fallen rapidly, yielding only about $30,000 a month per $15 million, used to meet recurrent expenses. The foundation raised about $600,000 in a charity concert and $800,000 on its first flag day last year. The money would finance various programmes. Mr Tong said the loss would not have an immediate impact on activities, but admitted ''an effect'' could not be avoided. He refused to reveal the extent of the investment or whether the foundation had recovered from the loss. He confirmed the foundation had closed all its foreign currency term deposits, adding the organisation had decided it would be inappropriate to do anything ''too risky''. Its new direction was to deposit in local currency accounts. He said the foundation invested in foreign currency deposits because they could only use interest generated from the seed fund. ''The interest we earned then was very low. It could not cover our expenses. At that point we discovered foreign exchange offered much higher interest rates,'' he said. Mr Tong said the decision to invest in foreign exchange deposits was made during the current financial year. He confirmed the foundation did not seek the help of fund managers, although he would not comment on who in its administration and finance committee - chaired by Mr Roger Lau - was an investment expert. He also said the foundation was considering how they could overcome the funding problem but said it had not come to a final decision on whether it should ask the Government to review the use of its seed money. Mr Lau was not available for comment.