HK Pension Funds Planning to Dump Treasuries if US Loses AAA Rating

Hong Kong's pension fund managers have formed a preliminary plan to sell down their Treasury holdings within as soon as three months if the US loses its last recognised top credit rating, according to people familiar with the matter.

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HONG KONG -

Industry groups, including the Hong Kong Investment Funds Association and the Hong Kong Trustees' Association, discussed the proposal with the pensions regulator on June 11, the people said, asking not to be identified as the meeting was private.

Under local regulations, managers of the city's HK$1.3 trillion (S$212 billion) Mandatory Provident Fund (MPF) system can invest more than 10 per cent of their funds in Treasuries only if the US has a AAA or equivalent rating from an approved agency.

The downgrade of US sovereign debt by Moody's Ratings in May left Japan's Rating & Investment Information (R&I) as the only remaining approved firm with the highest score.

While R&I has said it is not considering cutting its US rating, the MPF Schemes Authority in May urged pension fund managers to draw up "contingency plans" in case of a downgrade.