【MPF】Mandatory Provident Fund Schemes Authority: MPF allows investment in actively managed ETFs with a maximum limit of 10% of the fund's net asset value

The MPF Authority updates the “Guidelines on Stock and Other Securities Investments” on Tuesday (the 10th), including actively managed ETFs as a new asset class permitted for MPF funds. However, investments in this asset class must not exceed 10% of the fund’s net asset value, and related active ETFs must be approved by the SFC and listed on the Hong Kong Stock Exchange, while also complying with the relevant requirements for permitted MPF asset classes.

The MPF Authority stated that there are currently about 40 active ETFs in the market. This inclusion provides a framework and clear guidelines for MPF trustees and their investment managers to assess which active ETFs meet the criteria and are suitable for investment based on individual fund circumstances.

The Authority indicated that, under the premise of balancing returns and risks, it will continue to introduce more flexibility for MPF investments, facilitating MPF funds to diversify into a wider range of asset classes. This offers members more opportunities for risk diversification and aims to enhance the potential returns of their MPF investments, thereby better protecting and increasing their retirement savings.

MPF Authority: Investing in Active ETFs Responds to Rapid Growth of the Active ETF Market in Recent Years

Currently, MPF funds can invest in index-tracking ETFs. The Authority stated that this update to include active ETFs as an approved investment category is a response to the rapid growth of the active ETF market in Hong Kong in recent years, covering various asset classes such as money market and technology sectors.

The Authority explained that active ETFs are similar to non-listed mutual funds that track the same underlying investments, but they offer additional advantages such as risk diversification, increased transparency, and liquidity, providing extra protection for members. Therefore, qualifying active ETFs are included as permitted MPF investment categories to offer more competitive investment opportunities for MPF funds.

The Authority also noted that including the entire asset class of active ETFs into the permitted investment categories means MPF funds can invest in qualified active ETFs without prior individual approval from the MPF Authority. However, these active ETFs must be approved by the SFC and listed on the Hong Kong Stock Exchange, and must also meet the principles of permitted MPF asset classes—for example, they should not be classified as derivative product funds by the SFC, nor used as tools to circumvent MPF regulations (e.g., MPF funds are not allowed to invest in active ETFs related to cryptocurrencies).

Additionally, the initial cap for MPF funds investing in active ETFs is set at no more than 10% of the fund’s net asset value. This limit will be shared with other permitted asset classes, such as listed private equity funds and non-listed mutual funds. These investment restrictions aim to effectively control investment risks and ensure the proper protection of members’ interests.