The China Investment Corporation (CIC)
has taken the opportunity to reorganise its investment operations and focus on
less risky investments. The fledgling sovereign wealth fund, founded in
September 2007 with US$200 billion in foreign reserves to invest internationally,
has scrapped its equity, alternatives and fixed income divisions and created
four new arms to sit alongside the strategic asset allocation and research
department and report to the chief investment officer, Gao Xiqing.
The public
markets department will construct portfolios of investments in equities, fixed
income, commodities and cash, and will select external managers to implement
these allocations. Complementing this team, the private markets group will
source coinvestments and limited partnership in investments such as real estate
and infrastructure, while the special investments division will seek out
large-scale, concentrated investments with long time-horizons.
A tactical
investments department will manage internal portfolios and absolute return
strategies in public markets. According to a statement by CIC, the structural
changes are part of a commitment to improve corporate governance and investment
strategy, and better seize investment opportunities. The CIC would not provide
the names of the heads of the new divisions or confirm which responsibilities Zhou
Yuan, who was recruited from UBS investment bank in China as head of alternative
investments at CIC in December 2008, would now have, or whether he remained at
the fund.
The fund would also not comment on what had become of the role held by
private equity head Hu Bing, who previously ran fixed income and trading at the
fund, according to Reuters. The CIC is currently advertising 15 employment
vacancies, for roles ranging for asset allocation and strategic research to
equity, alternative and fixed income investment, operations and public
relations and international cooperation.
The internal restructuring and
recruitment drive started as the financial crisis began to wipe trillions from
global markets. Founded to profitably invest existing foreign exchange
reserves, the CIC was burnt by its investments in US financial companies at the
outset of the turmoil, and seems to have largely withdrawn to carry out
internal work and focus on domestic and regional investments. However in
mid-April, CIC chairman Lou Jiwei talked of the fund’s interest in investing in
Europe.
This followed earlier comments by CIC
deputy general manager Wang Jianxi that the fund saw opportunities in the
global market but was mulling how to exploit them given the political sensitivities
surrounding investments by sovereign wealth funds. Jianxi repeated that CIC’s
investment aims were purely financial and that it invested passively in
companies and altered its strategy according to market conditions. The CIC
website states that the fund “does not seek an active role in the companies in
which it invests”.
This passive approach, combined with developed economy businesses’
desperate thirst for cash, could help sweep away some of the objections to Chinese
investment abroad. But Jiwei’s comments about Europe
do not necessarily mean the international investor will immediately begin to hunt
for bargains in the region, according to the Economist Intelligence Unit.
Large
overseas investments could now become less important for the fund because the
downturn in exports has made rebalancing China’s capital flows a less urgent
task – one that was indirectly served by the CIC’s offshore investments. Amid
its internal activity the CIC has moved to invest in less-risky assets.
Recently it bought considerable chunks of domestic bank shares. According to China Daily, a state-run newspaper, the CIC
holds equity stakes of US$22.5 billion in China Construction Bank, US$22
billion in the Bank of China and US$22 billion in the Industrial and Commercial
Bank of China.
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