HK’s new wealth fund: How investments get picked
Hong Kong’s newly established $8 billion wealth fund is working with the government’s dedicated foreign investment agency to screen potential early investments.
In the Web3 space alone, Invest Hong Kong, the government’s foreign direct investment agency, has met with over 40 funds from Hong Kong, mainland China, and overseas markets that intend to raise capital from the Hong Kong Investment Corporation (HKIC), according to King Leung, head of financial services and fintech at Invest Hong Kong.
Invest Hong Kong has shortlisted a few funds and recommended them to HKIC and the Hong Kong Monetary Authority (HKMA) for further selection, Leung told AsianInvestor.
Last week, HKIC named HKMA executive director Clara Chan as its first CEO. Chan assumed office on Monday, Oct 9. New investments are expected to be made by year-end at the earliest, after she is onboard.
COOPERATIVE EFFORTS
As a new fund, HKIC is utilising support from HKMA, Invest Hong Kong, and the Office for Attracting Strategic Enterprises which is under the Financial Secretary's Office on operations and investments.
Invest Hong Kong is active in finding capital for foreign firms to expand into the city, which is why it has been supporting HKIC in their initial fund screening to help streamline the process.
“We have some good ideas about what are the things that may not be mature enough to be invested in at this time. So, we help shorten the list to make the job of HKIC a bit easier so that they can make investment decisions faster,” Leung said.
He also noted that the focus of HKIC is to invest in growth-stage startups and enterprises that can help the city attract more talent in fintech, artificial intelligence, biotech, life sciences, and advanced manufacturing.
This is why HKIC’s investments will focus on funds or managers who are based in Hong Kong or have a substantial presence in the city with locally hired staff.
In the early stage, HKIC will focus on investments via specialist general partners (GPs) and only consider direct investments that are of a certain size, with strong strategic positioning and value to Hong Kong.
In terms of fund selection criteria, Leung said the first and foremost is track record, although the thresholds could vary between different sectors.
For example, when looking at relatively mature areas such as advanced manufacturing, it is more likely to use a traditional lens of private equity and venture capital funds to look at the track record. That typically includes funds that have generated decent returns and have at least 10 years worth of experience across multiple vintages.
However, when looking at emerging investment areas such as Web3 and fintech, it is unlikely to use the same standards, Leung noted.
Instead, Invest Hong Kong will look at whether there are any big names in the existing limited partners (LPs) behind a fund, and whether these LPs have a good track record in making good investment decisions in these industries.
“If there are a good number of them as LPs, chances are these funds at least have some good track record or expertise that can attract all these big LPs,” Leung said.
EXPERTISE MATTERS
The other criteria he highlighted was the expertise of a fund.
In the Web3 space for instance, Leung noted that Hong Kong has “much better” markets for business-to-business (B2B) fintech compared to business-to-customer (B2C) fintech. This is because the city, as an international financial centre, is home to a lot of financial institutions with many B2B clients.
“We are very interested to talk to the B2B-focused fintech because we know this is where Hong Kong can really add a lot of value,” Leung said.
Meanwhile, he said the government is very interested in investing in the next generation of Web3 infrastructure to help upgrade Hong Kong’s financial services sector in the long term.
“Of course, we welcome all the funds. But all else equal, we are definitely interested to look at the Web3 infrastructure-focused funds…that can help enrich our ecosystem so that we have the latest and greatest future financial infrastructure,” he said.
GBA COLLABORATION
The initial assets allocated to HKIC are HK$62 billion ($7.9 billion), consisting of the HK$22 billion Hong Kong Growth Portfolio, the HK$5 billion Greater Bay Area Investment Fund, the HK$5 billion Strategic Tech Fund, and the newly established HK$30 billion Co-Investment Fund.
Through market research, Invest Hong Kong also provides support and suggestions to HKIC on fund operation. For example, it engaged with the Shenzhen government to take reference from its government fund structure and operation and explore co-investment opportunities.
“We put a lot of emphasis into GBA (Greater Bay Area) development. So, it’s only natural for us to explore our collaboration with different entities in mainland, especially in Shenzhen,” Leung said.
In particular, the Hong Kong government has met with officials from the Shenzhen Angel Fund of Funds to study how the fund is run.
The Shenzhen Angel Fund of Funds was established by the Shenzhen government in 2017 to focus on investments in seed-stage and early-stage enterprises to fill gaps in entrepreneurial investment.