CONFIDENTIAL E
Fr Secretary for Monetary Affairs
G6/9/1C(90).
MEMO
To
4
Secretary for the Civil Service (Attn: Miss Christina Tsang)
Ref (40) in
Tel. No.
528 1890...
Date.
8 January 1992
Your Ref. (109
AP 295/5-C(90) IV
dated
19 December 1991
Pension Safeguards Hypothecated Pension Funds.
Further
to our memo (39) in this series dated 7.1.92 from Ag. SMA giving you a general flavour of the Branch's view on the preliminary report by R. Margolis, I write to outline the detailed comments that we have on the report. Notwithstanding, the preliminary nature of the report, there are many loose ends in the report and statements that need to be substantiated. The following is an attempt to focus on the more important points arising in the report.
2.
Para. 5.1
<
- If funds are to be raised in HK dollars, their investment in a mix of foreign currencies would involve currency risk. The bold-type disclaimer in para. 2.1 of the report should perhaps be cross-referenced to this paragraph.
3.
Para. 5.3
The high returns quoted by certain UK companies might have resulted from investments in instruments of some high yield currencies, such as Gilts, and there would be currency risks for investors under the proposed scheme. Currency risk can be reduced considerably if the funds are invested in some US dollar instruments. This will, however, reduce the rate of return considerably.
10% compound annual rate of return is, in our view, an over-optimistic assumption.
A
4.
Para. 7.1 (b)
The choice of five years either side of 1997 as the period of maximum risk is quite arbitrary. If Government should accept the idea of interest rate protection, staff might push for protection over a longer period.
5.
Para. 7.2.1 and 7.2.2
-
Direct borrowing from banks at fixed interest rate for a period as long as ten years would be extremely difficult to secure as banks would be reluctant to take on interest rate risk for a long period for large amounts like HK$ 10 billion. The market practice is for direct borrowing by Government or large corporations be priced on the HIBOR or on prime in the case of private individuals.
to
G.F. 73C
CONFIDENTIAL #≈