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Cautious stance reaps rich dividends for CIC

By Zhang Ran (China Daily)
Updated: 2009-08-08 08:25

China's young sovereign wealth fund, China Investment Corporation (CIC), said on Friday that it reaped the benefits of investing cautiously during the global financial crisis, after posting a negative 2.1-percent return from its global portfolio for 2008.

Return on total capital, based on the accounting income of CIC's global portfolio, and the cash income and cash dividend declared from its domestic investment, is 6.8 percent for last year, CIC said in its annual report.

Total investment income and net profit in 2008 stood at $23.955 billion and $23.13 billion.

CIC's performance, however, is remarkable when compared with other sovereign funds, university endowments and pension funds.

Morgan Stanley strategist Stephen Jen had recently said that global sovereign funds could incur heavy losses of 18 to 25 percent on their investment returns in 2008.

"It was right on the part of CIC to rejig its investment strategy. Had it not done so, the return on global portfolio could be lower than the negative 2.1 percent," Jin Liqun, CIC's chairman of board of supervisors said at a media conference on Friday.

"CIC's return is comparatively good," said a CIC official.

The fund said it acted prudently in 2008 and invested only an additional $4.8 billion into the market last year with 87.4 percent of its assets in cash and cash products. Equities and fixed income accounted for 3.2 percent and 9 percent of the global investment portfolio.

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"We may step up the investment pace this year, as downside risks in the global economy have eased considerably," said an official with the sovereign fund.

The sovereign fund, however, has been stepping up the ante recently.

The fund recently bought A$500 million worth of convertible debt in Australian property firm Goodman Group.

CIC also has plans to enhance its partnerships with Morgan Stanley's asset management unit and Blackstone Group LP, the Wall Street Journal said earlier. It said CIC had finalized an allocation of $500 million to Blackstone Group and also plans to have Morgan Stanley oversee additional money.

CIC's move indicates that it is focusing on non-financial sectors such as prime consumption plays that can reap rewards when the economy recovers.

Earlier in July, CIC made a $1.5-billion investment in Canadian miner Teck Resources. This move indicates it is focusing on non-financial sectors that can reap rewards when the economy recovers.

The fund also has agreed to invest HK$2 billion for a 40-percent stake in private equity fund manager CITIC Capital, Reuters and Caijing magazine reported earlier, citing unnamed sources.

CIC started operations on September 29, 2007, with an initial corpus of $200 billion. Nearly 50 percent of the funds have been allocated for global investments, while Central Huijin, a wholly owned subsidiary of CIC, uses the balance for investment in domestic financial institutions.

The top five portfolio holdings of Central Huijin are China Development Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank.

Some of CIC's early international investments included minority stakes (under 10 percent) in US firm Morgan Stanley and the Blackstone Group.