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 relation s. 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. The fund, called TraHK, is currently being managed by the Hong Kong arm of Boston-based State Street Global Advisors. A State Street spokeswoman declined to comment on the Hong Kong government’s review. TraHK reiterated on July 29 that it was an inappropriate investment option for US persons, adding the advisory as an addendum to its prospectus , ahead of the Biden administration’s ban on the sanctioned Chinese stocks taking effect on August 2. The advisory was made in mid January after State Street flipped flopped as it agonised over the dilemma of complying with US sanctions, and doing its job. An initial decision to comply and divest the sanctioned stocks was swiftly met with a round of criticisms by Hong Kong’s officials. Chief Executive Carrie Lam Cheng Yuet-ngor and the former HKMA chief executive Joseph Yam Chi-kwong asserted that the monetary-authority appointed committee can change the fund’s manager. “The whole purpose of the Tracker Fund is to track the Hang Seng Index. If the manager cannot track the index, then the manager is no longer fit for duty,” Yam told the South China Morning Post in January. State Street backed down three days later, advising Americans that TraHK was no longer appropriate for them to invest in, according to a January 13 filing. The warning was repeated in April. “As previously communicated in January 2021, TraHK is not appropriate for US persons to invest in,” the State Street spokeswoman said, adding that a “very small percentage” of the fund is held by Americans. “The accompanying unit holder notice reminds TraHK’s investors that if they are US persons, US law may prevent them from disposing of or otherwise dealing in their units after June 3, 2022, although they may still receive dividends.” The June 3 executive order by US President Joe Biden bars American investors from buying securities of 59 blacklisted companies beginning Monday and gives them a year to exit their existing investments. It replaces a separate executive order in November 2020 by Trump. Biden had delayed the full implementation of the Trump executive order for months as it evaluated various policies by the prior administration, but opted to maintain a similar hardline approach to China overall, including not revoking tariffs levied on hundreds of billions of dollars of Chinese imports. China foreign ministry spokesman Wang Wenbin said at the time that the US had “abused its national power to suppress and restrict Chinese companies,” referring to the Biden executive order. There is no expiry date for State Street’s mandate, but there is a procedure to remove it as manager. A six-member supervisory committee, whose chairman is George Hongchoy, appointed by the HKMA, can replace the manager “for good and sufficient reason” where the change “is desirable in the interests of unit holders”. The manager may also be removed if more than 50 per cent of Tracker Fund unit holders vote for its removal.