The government announced today that the assets of the Land Fund will be merged into the Exchange Fund.
As envisaged in his speech presenting the 1998-99 Budget, the Financial Secretary has decided to streamline the investment management of the Government's accumulated fiscal reserves.
This is being achieved by the placement of the Land Fund, along with the fiscal reserves, with the Exchange Fund. This will enable the Land Fund to enjoy the same rate of return as that of the Exchange Fund, as in the case of the fiscal reserves, in accordance with the arrangements laid down in the 1998-99 Budget Speech.
The streamlining exercise involves the merging of the assets of the Land Fund into the Exchange Fund. The reference date for the merger is 31 October 1998. The assets of the Land Fund amounted to about HK$211.4 billion as at 31 October 1998. Subject to appropriate audit procedures, this will be the amount placed with the Exchange Fund for the account of the Land Fund. The fiscal reserves already placed with the Exchange Fund amounted to HK$203.1 billion as at 31 October 1998.
The Land Fund will continue to be administered in accordance with the Resolution of the Provisional Legislative Council in July 1997. The placement of all of the Land Fund, along with the fiscal reserves, with the Exchange Fund, for a return that is the same as that of the Exchange Fund, is an investment decision taken by the Financial Secretary under the terms of the Resolution. The Land Fund will remain a separate government fund after the merger. The alignment exercise will not pre-empt consideration of the long-term use of the Land Fund, and any proposal in this regard is subject to approval by LegCo in accordance with the Resolution establishing the Land Fund.
After the merger, the Hong Kong equity portfolio previously held in the Land Fund will be passed over to the Exchange Fund Investment Limited (EFIL) for management in the same manner as the Hong Kong equity portfolio acquired by the Exchange Fund in the market operation in August. This will be done as soon as the necessary approval has been obtained from the Securities and Futures Commission for EFIL to act as an investment advisor. All Hong Kong equity holdings of the HKSARG will therefore be consolidated for management by EFIL. Although this reduces the flexibility in the handling of such holdings, it is in line with the high degree of transparency expected of the Exchange Fund.
The size of the Land Fund's Hong Kong equity holdings is relatively small compared with the Hong Kong equity portfolio purchased during the market intervention in August. But EFIL will be asked to consider whether it is appropriate also to disclose the details of the enlarged Hong Kong equity portfolio as a result of the merger.
Meanwhile, the long-term strategy on the HKSARG holding of Hong Kong equity is to be examined by the Hong Kong Monetary Authority, in the context of the overall review on asset allocation in the management of the Exchange Fund. EFIL will be consulted on that strategy before a recommendation is made to the Exchange Fund Advisory Committee.
The Financial Secretary Mr. Donald Tsang said: "this exercise will enable greater administrative efficiency and economies of scale in the management of our accumulated fiscal reserves, including the Land Fund, as I promised to achieve in my 1998-99 Budget Speech."
Hong Kong Monetary Authority
17 November 1998
