Hong Kong’s pension regulator said on Wednesday it has no plans to alter its investment rules despite the recent downgrade of the United States’ credit rating, but urged fund managers to prepare contingency plans in case of significant market developments.
The Mandatory Provident Fund Schemes Authority (MPFA), which oversees the city’s HK$1.3 trillion ($166 billion) pension system, said in a written response to China Daily that existing rules — including limits on asset-class exposure, are designed to ensure risk management and protect MPF members’ interests.
“The MPFA has no plan to amend the relevant regulations,” it said.
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Under existing rules, MPF funds can allocate more than 10 percent of their assets to US Treasurys only if the country is rated AAA or at an equivalent level by an authority approved by the MPFA.
The Japan-based Rating and Investment Information (R&I) now is the sole agency that has maintained the US credit rating at AAA, following downgrades by Moody’s Corp, Fitch Ratings, and S&P Global Ratings.
Moody’s cut the US credit rating earlier this month from Aaa to Aa1, citing rising government debt levels and higher interest payment burdens. If R&I were to follow suit and downgrade its rating, MPF funds exceeding the 10 percent cap on US Treasurys would face sales to comply with regulations.
The MPFA said it had recently issued a regular reminder to trustees about their fiduciary responsibilities during major market events, urging them to evaluate the potential impact on MPF funds, consult investment managers, and formulate strategies in case the US loses its status as an “exempt authority” under local pension-fund rules because of further credit rating downgrades.
The response comes amid market discussions on easing restrictions for US government debt, suggesting allowing funds to exceed the 10 percent cap even if the credit rating drops one notch below AAA.
Sally Wong Chi-ming, CEO of the Hong Kong Investment Funds Association, said that rules on investment allocation should be applicable across all overseas markets to ensure consistency.
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Michael Chan, managing director at GUM, an MPF consulting firm, said that requiring a high credit rating for investments in government debt is necessary, as it helps mitigate market volatility and safeguard investors’ interests. However, he also suggested that the 25-year-old rule may require reassessment to ensure it adapts to current market conditions.
Wong added that MPF regulations should keep pace with market and economic developments, balancing between risk and return to remain practical and sustainable.
Contact the writer at irisli@chinadailyhk.com
