Monetary Authority Chief Executive Joseph Yam warns the Exchange Fund will not escape mark-to-market losses for the third quarter, adding the investment environment remains very volatile and will likely continue to be.

In his weekly Viewpoint column published today Mr Yam said he hoped Hong Kong people will not be unduly alarmed given the current investment environment and the fund's nature and purposes, stressing the authority will, as always, do its very best to manage it prudently.

"The fund is not managed like a conventional investment fund. Its investment objectives stress liquidity and capital preservation because the fund assets must be available to support the local currency at short notice if required. These objectives, and an emphasis on prudence and risk management, have stood us in good stead," Mr Yam said, noting the Hong Kong dollar exchange rate has remained stable amid the recent turmoil.

He said effective risk management has meant the fund has not been exposed to some of the "toxic" assets that have caused problems in the markets.

"Our exposure to financial institutions that have failed has also been either zero or very small through passive investments that track the indexes of the stock markets on which those institutions were quoted. We were also able to reduce exposures in good time, where it seemed prudent to do so," he noted.

He added a significant part of the fund loss, about 60%, is due to the holding of Hong Kong equities which comprise the remainder of the stocks purchased 10 years ago as a major response to an earlier financial crisis that will not be disposed of.