Hong Kong urges inclusion of mainland pension funds in Bond Connect southbound scheme
Hong Kong's Financial Services Development Council recommends allowing mainland pension funds to invest via the Bond Connect southbound channel, citing higher offshore bond yields and potential returns. The report also highlights opportunities for Asian family offices in private equity and venture c
The Hong Kong Financial Services Development Council (FSDC) has published a research report on attracting patient capital, recommending that mainland Chinese pension funds be included in the southbound leg of the Bond Connect scheme. FSDC Vice-chairman Ting Sun said pension funds are more conservative than insurers in their investment approach and slower to invest overseas, but prefer fixed-income and bond products. Given the higher yields on offshore bonds, he said the move could boost the funds' returns.
Ting noted that as of the third quarter of this year, the mainland insurance industry's total assets stood at about 44.6 trillion yuan (US$6.2 trillion). He pointed to an earlier decision by the China National Financial Regulatory Commission to allow insurers to invest in Hong Kong-listed exchange-traded funds via the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect schemes, which he said could encourage asset managers to launch more new products. He added that industry observers see strong demand and interest from insurers in overseas investment, although insurers require long-term due diligence and have specific liquidity requirements. He expressed confidence that more mainland long-term capital would invest in Hong Kong ETFs.
FSDC Human Resources Committee member Li Zien added that when making strategic asset allocations, patient capital needs to match assets with liabilities and seek long-term stable income. He therefore recommended deepening the bond market, which would help improve the renminbi asset yield curve and allow patient capital to capture opportunities in both mainland China and Hong Kong.
Another Human Resources Committee member, Wu Shangkai, said Asian family offices typically allocate around 5 per cent of their portfolios to private equity (PE) and venture capital (VC), far below the 20 per cent or more seen in the West. He said Asian family offices are keen to find PE and VC investment opportunities in Asia, and noted that many mainland projects use Hong Kong as a springboard for overseas expansion, offering significant room for growth.
FSDC Chief Executive Officer Tung Yip said attracting patient capital is a very lengthy process, but can directly boost economic and commercial activities, including banking, insurance, treasury management and professional services.