In April 2010, the Hong Kong Monetary Authority announced plans to enter the hedge fund arena this year. The USD 201 billion sovereign wealth fund intends to shift part of its Exchange Fund assets into alternatives. The Exchange Fund is divided into two portfolios – the Backing Portfolio and the Investment Portfolio. The Backing Portfolio holds highly liquid US dollar denominated securities, whilst the Investment Portfolio is invested primarily in the bond and equity markets of the member countries of the OECD. Hong Kong Monetary Authority Investment Portfolio is likely to focus its alternative investments in Asia, and will also consider increasing exposure in China. The decision to invest in hedge funds, as well as private equity, marks a shift from HKMA’s traditionally conservative approach. With its sizable reserve, the wealth fund has the flexibility to diversify its portfolio by investing in riskier assets.
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