Hong Kong – The Mandatory Provident Fund Schemes Authority (MPFA) has approached MPF trustees to evaluate the implications of the recent US credit rating downgrade by Moody’s, amid growing concerns that some MPF funds may be forced to sell US Treasuries due to regulatory thresholds.
The MPFA is seeking clarification on how trustees would respond if the US no longer qualifies as an ‘exempt authority’—a status required for MPF funds to hold a higher concentration of sovereign bonds under current investment rules. At present, only one Japanese credit agency, Rating and Investment Information (R&I), maintains a top-tier AAA rating for the United States.
Under MPF investment rules, funds are allowed to allocate over 10% of assets to bonds issued by ‘exempt authorities,’ which include governments or central banks rated AAA by recognized agencies. Should the US lose this classification, large-scale reallocation may be triggered, especially in passively managed or lifecycle funds that hold significant US bond exposure.
Industry sources say that several trustees have already begun internal discussions with asset managers to assess risk and plan asset rebalancing strategies. The Hong Kong Investment Funds Association (HKIFA) has also engaged with the MPFA and Financial Services and the Treasury Bureau (FSTB), suggesting that a case-by-case exception for US Treasuries be considered.
The FTSE MPF Index provider, FTSE Russell, is reviewing whether any adjustment to its indices is necessary following the downgrade. As many MPF funds use these indices as benchmarks, any changes could have a wide impact across the system.
In a statement, the MPFA confirmed that it has no plans to amend the investment regulations but has asked trustees and asset managers to conduct scenario analysis and establish compliance strategies that align with the best interests of MPF members. The regulator emphasized its commitment to safeguarding retirement savings while remaining responsive to evolving global risks.
As of end-2024, the net asset value of MPF bond and mixed-asset funds potentially exposed to US Treasuries exceeded HK$484 billion, though exact holdings of US bonds were not disclosed.
