Monetary Authority Chief Executive Joseph Yam says the Exchange Fund's investment performance should be judged over the longer term.

In his Viewpoint column published today, he said despite the unusually rough period global financial markets are experiencing, the fund's conservative investment approach has helped keep losses to a minimum.

The longer-term approach to the fund's investment return is reflected in the revised income-sharing arrangement between the fund and the fiscal reserves the Government placed with it introduced in April last year.

Under the arrangement, the fund pays a fee to the fiscal reserves based on the six-year moving average of the investment return of the fund's investment portfolio.

The Government's investment income from the fiscal reserves in 2008 will therefore not be immediately affected by the fund's performance during the year, he said.

Spreading-out effect

The system spreads out the effects of good and not-so-good years making the Government's income from fiscal reserves more stable and predictable.

This year the fee will be about $40 billion, depending on the actual amount of fiscal reserves deposited with the fund during the year, or a 9.4% rate of return, which is the six-year moving average already fixed for 2008.

"We have to take the rough with the smooth and should not be surprised by short-term losses at times of high market volatility and uncertainty. The important thing is the long-term performance of the fund and its ability to fulfil its primary purpose.