China Investment Corp., which posted a 4.3% loss on its global portfolio last year, has significantly reduced its holdings of public securities and accelerated a push into longer-term investments as the $482 billion sovereign-wealth fund seeks to shield itself from short-term market swings.
CIC said in its 2011 annual report released Wednesday that public equities made up 25% of its global portfolio at the end of last year, down from 48% at the end of 2010. Long-term assets—which include direct investments in nonpublic companies and private equity—and hedge funds together accounted for 43% of its portfolio. Though it disclosed few details of its moves, it said it made direct investments in oil and gas, mining and infrastructure to shift toward "lower-risk assets."
The report reflects a delicate balance that the fund, which was created in 2007 to boost returns on China's $3.2 trillion foreign-exchange reserves, is trying to strike. It is positioning itself as a long-term investor, with a 10-year horizon, even as its year-to-year results are closely scrutinized by the Chinese public, which sees the foreign-exchange reserves as a national asset sometimes called "xue han qian," or the blood and sweat of the nation's workers.
CIC's report was the first time the fund had disclosed its results for 2011. The negative 4.3% return on its investments, which came in a year when global markets were broadly lower, was the worst annual result since the fund's inception.
CIC said it views "a rolling 10-year annualized return" as a major measure of performance. It has booked a 3.8% annualized return on its global portfolio since 2007. The fund's assets stood at $482 billion as of the end of last year, including a $30 billion infusion from the Chinese government in December.
Among other assets, CIC said Wednesday that 21% of its overseas holdings were in fixed-income securities, with 11% in cash.
In early 2011, CIC's board extended the fund's investment horizon to 10 years from five years. Subsequently, the fund "bolstered our portfolios against market shocks," CIC Chairman and Chief Executive Lou Jiwei said in the report. "We gradually built up positions in nonpublic market assets, particularly direct investments and private equity investments in such industries as energy, resources, real estate and infrastructure."
CIC has spent billions of dollars on energy and natural resources since 2009, as it expects the industry to benefit from China's economic growth and demand for energy. So far, it has mainly made the investments through buying stakes in energy and resource companies. CIC's investments in those areas include $3.15 billion in French utility GDF Suez's exploration and production division; $1.5 billion in Teck Resources, TCK -4.76%a Vancouver-based metals and mining company; $1.6 billion in AES Corp., a Virginia-based power company; and $500 million in SouthGobi Energy Resources Ltd., a Canadian mining company with operations in Mongolia.
But that sector has been volatile, with some of CIC's holdings in the area falling below the prices the fund first paid for the stakes. What's more, a slowdown in China's economic growth threatens to hurt the fortunes of the industry, at least in the near term.
In an interview with The Wall Street Journal in June, Mr. Lou said the energy sector's "cyclical volatility" poses a risk to the performance of CIC, which reports the value of its assets by market price. "This may create certain pressure on our short-term performance," he said at the time. "So on one hand, we're interested in the energy space; on the other hand, we have to carefully select the kind of opportunities to invest in."
Singapore's sovereign-wealth fund, Temasek Holdings Pte. Ltd., also said it has invested more in energy and resource producers.
In addition, CIC has adopted a more direct investment approach of co-investing with—rather than investing through—third-party fund managers, a move that could allow the fund more influence over companies it holds and potentially give it greater financial gain down the road.
For instance, CIC has decided to provide $200 million for a fund led by BlackRock Inc. to invest in Chinese companies seeking to make acquisitions overseas, according to people directly involved in the fund. "That figure could be incrementally increased if the fund's capital raising gets to certain level," one of the people said.
Late last year, CIC also backed a technology-focused fund, called WestSummit Capital Fund, with $210 million. The fund intends to capitalize on "the significant market opportunity for growth capital investments" in China's burgeoning technology markets, according to the fund's documents reviewed by the Journal.
No comments:
Post a Comment