# Hong Kong Monetary Authority Investment Portfolio: Guide to Its Role and Assets

![Hong Kong Monetary Authority Investment Portfolio](https://www.investopedia.com/thmb/_4V3VwHpdHIQtbMsfkxtoRF0arc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/hong-kong-monetary-authority-investment-portfolio.asp-final-1-e1c2208ae17a4b1c87d5b9c7d4bd687e.png)

*— Investopedia / Joules Garcia*

> **Definition**
>
> The Hong Kong Monetary Authority Investment Portfolio is a sovereign wealth fund that invests primarily in the bonds and equities of nations within the Organization for Economic Cooperation and Development.

The Hong Kong Monetary Authority Investment Portfolio is an investment portfolio run by the Hong Kong Monetary Authority. The authority is the [sovereign wealth fund (SWF)](https://www.investopedia.com/terms/s/sovereign_wealth_fund.asp) of the government of the Hong Kong Special Administrative Region. SWF funds are state-owned investment funds that generate economic benefits for their citizens using a country's surplus reserves.

### Key Takeaways

*   The Hong Kong Monetary Authority Investment Portfolio is part of the Exchange Fund, which aims to stabilize the region's currency and banking system. The Exchange Fund is overseen by the Hong Kong Monetary Authority (HKMA), which acts as a currency board and de facto central bank.
*   With $580.54 billion in assets as of 2021, the Investment Portfolio is one of the world's largest sovereign wealth funds, ranking fourth globally.
*   The Investment Portfolio focuses primarily on bond and equity markets in OECD countries, with a strategic asset allocation of 73% bonds and 27% equities.
*   A significant portion of the Exchange Fund assets, including the Investment Portfolio, is managed internally, while equity portfolios and specialized investments are managed by external experts.
*   The Exchange Fund uses both strategic and tactical asset allocation to achieve optimal investment outcomes and potentially exceed benchmark returns.

## Key Features of the Hong Kong Monetary Authority Investment Portfolio (HKMA)

The investment portfolio is only one of two in the Hong Kong Monetary Authority's Exchange Fund. The Exchange Fund also manages a backing portfolio that supports the operations of the Hong Kong Currency Board. Because the backing portfolio is invested only in highly liquid U.S. government securities, it is generally not considered part of the sovereign wealth fund. According to the Sovereign Wealth Fund Institute, the investment portfolio controlled $580.54 billion in assets as of 2021 and is the 4th largest sovereign wealth fund in the world.

## The Role and Responsibilities of the Hong Kong Monetary Authority

The Hong Kong Monetary Authority is the region’s currency board and de facto [central bank](https://www.investopedia.com/terms/c/centralbank.asp). It was established on April 1, 1993, when the Office of the Exchange Fund and the Office of the Commissioner of Banking merged. The organization reports directly to the financial secretary.

Under the Exchange Fund Ordinance, the Hong Kong Monetary Authority’s primary objective is to ensure the stability of the region's currency and banking system. It is also responsible for promoting the efficiency, integrity, and development of the financial system.

A majority of the Exchange Fund assets are managed internally. All of the backing fund is managed internally, as is some of the investment portfolio. However, the Exchange Fund employs external managers for its equity portfolios and other specialized investments. The investment benchmark for the Exchange Fund consists of 75% bonds and 25% equities.

## Asset Allocation and Strategy Within the HKMA Investment Portfolio

The Hong Kong Monetary Authority's investment portfolio is primarily invested in the bond and equity markets of [Organisation for Economic Co-operation and Development (OECD)](https://www.investopedia.com/terms/o/oecd.asp) countries. The target allocation is 73% bonds and 27% equities. The target currency mix is 89% USD- and HKD-denominated assets to 11% other denomination assets.

The investment process of the Exchange Fund is underpinned by decisions on two types of asset allocation: strategic and tactical. The strategic asset allocation, reflected in the investment benchmark, represents the long-term optimal asset allocation given the investment objectives of the Exchange Fund. Guided by the strategic allocation, assets are tactically allocated in an attempt to achieve an excess return over the benchmark. This means the actual allocation is often different from the benchmark or strategic allocation.

> **Article Sources**
>
> 1.  Sovereign Wealth Fund Institute. "[Top 100 Largest Sovereign Wealth Fund Rankings by Top Assets](https://www.swfinstitute.org/fund-rankings/sovereign-wealth-fund)."
>     
> 2.  Sovereign Wealth Fund Institute. "[The Exchange Fund of Hong Kong Special Administrative Region (HKMA IP)](https://www.swfinstitute.org/profile/598cdaa50124e9fd2d05b3a7)."
>     
> 3.  Hong Kong Monetary Authority. "[History](https://www.hkma.gov.hk/eng/key-functions/reserves-management/history/)."
>     
> 4.  Hong Kong Monetary Authority. "[HKMA Annual Report 2019](https://www.hkma.gov.hk/media/eng/publication-and-research/annual-report/2019/19_ExchangeFund.pdf)," Page 263.