HKMA invests US$1bn in World Bank programme for infrastructure projects
The Hong Kong Monetary Authority (HKMA) has provided US$1 billion to a programme run by the World Bank’s International Finance Corp that could help boost the de facto central bank’s investment returns by supporting infrastructure projects in emerging markets.
HKMA’s commitment to the managed co-lending portfolio programme (MCPP), a syndicated loan platform, may be used for IFC-funded projects in more than 100 emerging market countries, including in infrastructure, telecoms, manufacturing, agri-business and services, according to a joint statement from IFC and HKMA. Proceeds will be invested into projects for US dollar or euro loans.
“Emerging markets present a broad array of untapped investment opportunities with good long-term growth potential,” said Norman Chan, HKMA chief executive. “Together, we will support commercially viable projects in emerging markets.”
The HKMA’s Exchange Fund holds Hong Kong’s reserves used for defending its currency, and for making investments. But the global equity and currency markets have been volatile while government bonds have produced low yields in recent years. The average investment return of the Exchange Fund was 0.9 per cent over the past three years.
To enhance returns, the HKMA has been diversifying part of the Exchange Fund’s investment into a wider variety of asset classes, including emerging market and mainland Chinese bonds and equities, private equity and overseas investment properties.
As of March 31, the Exchange Fund had total assets of HK$3.76 trillion (US$482.29 billion), comprising HK$407 billion in deposits, HK$2.55 trillion in bonds, HK$161.9 billion in Hong Kong equities, HK$467.8 billion in overseas equities and HK$181.6 billion in other assets.
The agreement with IFC was signed on Tuesday and comes after the establishment of HKMA’s Infrastructure Financing Facilitation Office (IFFO) in July 2016 for the facilitation of infrastructure investments and their financing, with its mandate to promote Hong Kong as an international financial centre, the HKMA said.
Infrastructure investment through IFC’s MCPP can expand a new asset class as a source of income for the Exchange Fund, it said.
“Noting the attractiveness of steady long-term returns in infrastructure investments, the HKMA has been active in expanding this new asset class for the Exchange Fund,” Chan said. “IFFO will continue to play a catalytic role in pooling together interested equity and credit investors for infrastructure investments in emerging markets.”
MCPP’s investor base includes the State Administration for Foreign Exchange (SAFE), which committed US$3 billion in 2013, as well as Allianz and Eastspring Investments, which committed US$500 million in 2016 and 2017 respectively, with a specific focus on infrastructure.