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Performance of the Exchange Fund

Commenting on recent public interest in the investment management of the Exchange Fund, a Hong Kong Monetary Authority (HKMA) spokesperson said today (Monday) that the Exchange Fund has specific statutory objectives and is not an ordinary investment fund. Nevertheless, the substantial investment return earned by the Fund over the years has enabled Hong Kong to strengthen its ability to defend the Linked Exchange Rate system and maintain financial stability.

"Under the Exchange Fund Ordinance, the purpose of the Exchange Fund is to safeguard the monetary and financial stability of Hong Kong. The investment objectives set for the Fund are therefore designed to ensure that it has sufficient liquidity to achieve this purpose, while at the same time preserving capital," the spokesperson said. "Investment activities must therefore be carried out prudently, in accordance with these objectives. This means that the Fund is unable to invest in high-return, high-risk instruments of low liquidity to the extent possible by other investment funds," the spokesperson added.

The investment strategy of the Exchange Fund is governed by the investment benchmark approved by the Financial Secretary after consultation with the Exchange Fund Advisory Committee. The investment benchmark, which represents an optimal mix of assets, is designed to meet the following investment objectives:

(a) to preserve capital;

(b) to ensure that the entire Monetary Base at all times will be fully backed by highly liquid short-term US dollar-denominated securities;

(c) to ensure that sufficient liquidity will be available for the purpose of maintaining monetary and financial stability; and

(d) subject to (a) to (c), to achieve an investment return that will preserve the long-term purchasing power of the Fund.

"The Exchange Fund is therefore not an ordinary investment fund, and comparisons between it and other investment funds are unhelpful," the spokesperson said.

The spokesperson said that, within the constraints of the investment objectives, the Exchange Fund had generated a compounded annual return of 6.3% since 1994, compared with the compounded annual inflation rate in Hong Kong of 1.3% during the same period. The investment return on the Fund has consistently met or outperformed that of the benchmark set for the Fund. Since benchmarking was introduced in 1999, the average annual outperformance has been 1.2% above the benchmark return. "Working under the guidance of the Financial Secretary and the Exchange Fund Advisory Committee, the HKMA will continue to manage the Exchange Fund prudently in the best interests of the people of Hong Kong," the spokesperson said.

For further enquiries, please contact:
Hing-fung Wong, Resource Co-ordinator, at 2878 1802 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
1 May 2006

Last revision date: 1 August 2011
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