Exclusive | Hong Kong reviews rules for picking Tracker Fund’s manager to mitigate risk to pensioners in rising US-China rivalry

Regulators will study if they should switch to a manager without ties to the United States to avoid any conflicting interests between abiding by US sanctions and disenfranchising Hong Kong investors

Even if the review maintains the current mandate, an expiry clause could be inserted as part of the process

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Published: 2:18pm, 30 Jul 2021Updated: 11:30pm, 30 Jul 2021

Hong Kong’s regulators are reviewing the process for appointing the manager to oversee the Tracker Fund, as it moves to shield the city’s biggest exchange-traded fund (ETF) from being ensnared in deteriorating US-China relations.

As part of the review, regulators will study whether they should switch to a manager without ties to the United States to avoid any conflicting interests between abiding by US sanctions and disenfranchising Hong Kong investors, according to two people familiar with the matter, speaking anonymously because they are not authorised to discuss the matter publicly. Even if the review maintains the current mandate, an expiry clause could be inserted as part of the process, they said.

The review is being undertaken as an expanded sanctions list enacted by the Joe Biden administration takes effect on August 2, with a longer list of Chinese companies that purportedly have ties with the Chinese military, more than the names singled out by the former Trump administration. The list comprises 59 companies, three of which are constituents of Hong Kong’s Hang Seng Index benchmark, such as the world’s largest cellular phone network operator China Mobile, and China’s largest offshore oil explorer Cnooc.

Established in November 1999, the Tracker Fund was first set up by the Hong Kong Monetary Authority (HKMA) to dispose of the city government’s equity holdings accumulated in a two-week, HK$118 billion (US$15.2 billion) intervention to prop up stock prices during the 1998 Asian Financial Crisis.

The fund, with HK$90 billion of assets under management, is popular with retail investors and many of the 4.5 million members of the Mandatory Provident Fund (MPF), the city’s retirement scheme. Twelve MPF funds offer the Tracker Fund as an investment choice.