[Archive] Investment strategy for Quality Education Fund

Asked by : Hon Audrey EU

Replied by : SEM

Question :

It has been reported that the Quality Education Fund recorded investment losses in the past two years. In this connection, will the Government inform this Council:

1. of the weighting of each type of investments, such as cash deposits in banks, stocks and bonds etc., by the Fund in the past three years, and the respective rates of return of each type of investments and of the Fund as a whole;
   
   
2. whether the relevant authority will review the investment performance of the Fund and adjust its investment strategy in the light of the findings, in order to lower the Fund's risk exposures; and
   
   
3. whether the relevant authority has formulated guidelines on the Fund's investment strategy, particularly on the acceptable risk exposure level; if so, of the details; if not, the reasons for that?
   

Reply:

Madam President,

1. The investment strategy of the Quality Education Fund (QEF) is to generate steady income over the long term with reasonable growth and acceptable risk. This is achieved by a global balanced portfolio with diversified investment into different types of securities and markets following the advice of an investment consultant. The QEF has been adopting a strategy of investing 55% of its fund in equities, 40% in bonds and 5% in cash. The actual allocation has been fluctuating around this benchmark and the details for the past three years are included in Appendix I.
   
   As at end August 2002, having funded projects totalling over $2.6 billion, the balance of the original $5 billion Fund stood at $3.8 billion. The cumulative investment return is $1.4 billion or 27% since the launch of the QEF in 1998. The detailed rates of return for the past three years are at Appendix II.
   
   
2. The Government has set up a Quality Education Fund Investment Committee which, inter alias, will review the investment strategy and performance of the Fund. The Committee consists of officials including the Director of Accounting Services as well as non-official members. The Committee meets on a quarterly basis. A comprehensive review of the investment strategy is expected to take place next year while an interim review had been conducted by the Committee last year.
   
   
3. The QEF Investment Committee sets investment strategy and guidelines for the Fund which may be revised as necessary after considering the recommendations of its investment consultant(s). The guidelines, in line with general Government investment guidelines, are set with a view to limiting investment risks to an acceptable level. These include that:
   
   1. bonds have to be rated at Moody's rating of A3 or above;
      
      
   2. investment must be in freely convertible currencies;
      
      
   3. equities must be listed in recognized stock of exchange and with capitalization of over HK$10 Billion; and
      
      
   4. total exposure to foreign currency risk should not be more than 35% of the portfolio, etc.
      
      

Allocation of the Quality Education Fund

Investment Returns of the Quality Education Fund