The Hong Kong Monetary Authority (HKMA)’s $300 billion Exchange Fund has made its first forays into real estate investments, according to its 2010 annual report.
The government authority, which launched in April 1993 to ensure the stability of the former British colony’s currency and banking system, said in the report published last week that it had made investments into real estate through a subsidiary company called Real Gate Investment Company (RGIC).
RGIC, a wholly-owned company, has made investments into two undisclosed real estate joint venture companies. These companies are incorporated outside of Hong Kong and have themselves made overseas investments.
In one of the companies, RGIC owns a 74 percent stake, the other a 51 percent stake.
According to its report, HKMA’s investment in RGIC formed part of a wider HK$16.83 billion (€1.48 billion; $2.16 billion) investment into four new subsidiary companies made via HK$16.68 billion of loans and HK$2.15 billion of unlisted shares.
Alongside RGIC, HKMA also made investments into subsidiaries called Eight Finance Investment Company, Drawbridge Investment and Debt Capital Solutions Company. The report does not reveal what these firms investment in, but Asian Investor said in a report they included private equity and emerging markets securities. The news provider also said the subsidiaries were managed internally by HKMA.
Such investments are regarded as something of a departure for HKMA’s Exchange Fund which has not traditionally made inroads into alternatives. Previous subsidiaries set up via the fund include a banknote printing company, a mortgage guarantee company and the Hong Kong Mortgage Corporation.
Whether these initial real estate outlays lead to more significant commitments in the sector remain to be seen, according to PERE sources. One Hong Kong-based GP said while the move into real estate was ‘exciting’ the very purpose of the HKMA meant large scale real estate investments would be unlikely.
He said: “They need access to liquidity quickly to be able to maintain the Hong Kong Exchange, to step in if there are any problems. Because of that I’d be very surprised if they became a meaningful private equity investor.”
“Most of their capital has to be invested into securities, fixed income investments like government bonds and currencies. With them, everything needs to be fairly liquid, not long term.”
In the annual report, HKMA said the Exchange Fund had returned HK$79.4 billion or 3.6 percent in 2010, up on its three-year average return of 1.2 percent. The fund’s total assets reached HK$2.35 trillion for the year.