BEIJING—China Investment Corp. said it earned an 11.7% return on its overseas portfolio last year, boosting its assets to $409.6 billion, as the Chinese sovereign-wealth fund deployed almost all of its capital and accelerated investments into higher-risk assets.
CIC's annual report, published Tuesday, highlighted the fund's increasingly aggressive allocation, with more of the portfolio in so-called alternative investments, which include private equity, real estate and infrastructure.
"We reduced our cash holdings and increased our investments in alternative assets with a view to further diversifying our portfolio," CIC Chairman Lou Jiwei said in the report. Alternative assets accounted for 21% of CIC's overseas investments at the end of 2010, from 6% in 2009, while cash holdings plunged to 4% of its oversease portfolio, from 32%.
CIC was formed in 2007 to improve returns on China's swelling foreign-exchange reserves—currently $3.2 trillion, making them the world's largest—which had been in U.S. Treasury bonds and other low-yield investments. The fund's annual report, released every July, provides a rare window into its finances and investment practices.
About half of CIC's initial allocation of $200 billion was designated for international investments, with most of the rest tied up in stakes in China's state banks, whose value has increased significantly on CIC's books, partly because of accounting changes.
That international allocation "became essentially fully invested" last year, and CIC has been waiting for at least a year for the government to provide additional capital to invest. A senior CIC official said in May that it had made progress toward getting fresh capital and "will eventually work out a mechanism through which we will have continued funding." But no decision has yet been announced, a delay analysts attribute to bureaucratic infighting and debates over the fund's proper role.
Some analysts say last year's performance, which equaled that of 2009 and was roughly in line with key U.S. market indexes, could help CIC get fresh capital. "They're telling a story (in this report) of strong returns but of having little cash to invest," said Rachel Ziemba, a senior analyst at Roubini Global Economics who tracks sovereign-wealth funds.
CIC was widely criticized in China for big losses on its early investments in Blackstone Group LP and Morgan Stanley. CIC officials have defended the fund's performance, saying it is a long-term investor that shouldn't be judged by short-term swings in its holdings.
The fund, which began with a focus on traditional asset classes as stocks and bonds, undertook a review of its approach last year, according to the annual report. It decided in January this year to extend its investment horizon to a decade from five years, a change that allows it to "accept a higher risk-return profile in its investment portfolio in order to better balance short-term pressure and long-term interests," the annual report said.
Continued economic and financial challenges world-wide, including low interest rates, soaring commodity prices and a persistent debt crisis in the euro zone, make this a tricky time to allocate. Some analysts expect CIC to become more reliant on its own investment team, especially in strategically important sectors like precious metals and energy, and less on outside managers. The fund increased its investment staff by almost half in 2010, to 351 people.
"CIC likely will keep very core investment assets to themselves and give something like real estate and consumer goods to third-party managers," said Echo Hu, an analyst Z-Ben Advisors, a consulting firm in Shanghai.
Mr. Lou said the fund entered 2011 with "a cautiously positive" outlook, adding: "While we expect global economic conditions to be further improved, there will still be challenges ahead."
CIC's direct investments CIC last year included $1.6 billion in AES Corp., a Virginia-based power company, which bought it a 15% stake; $416 million in Penn West Energy Trust, based in Calgary, Alberta, Canada (5%); $200 million in Chesapeake Energy, of Oklahoma City.
North America remained the top location for CIC's equity holdings, accounting for 42%, followed by the Asia-Pacific region, Europe, Latin America and Africa.
Separately, China's currency watchdog on Tuesday released a second statement in less than a week rebutting claims made by its domestic critics. The public-relations campaign by the normally secretive State Administration of Foreign Exchange—which manages the vast bulk of China's currency reserves—highlights how the massive stockpile has become something of a political liability at home.
Domestic critics often argue that China's foreign exchange reserves represent the "blood and sweat" of its domestic laborers, and should thus be used domestically instead of invested overseas. In fact, SAFE noted, China's central bank, the People's Bank of China, purchases the foreign-exchange reserves from domestic sellers, giving them newly printed yuan in exchange.
"Companies and individuals are not giving their foreign exchange to the country for free, they are selling it for yuan of equal value," SAFE said in the statement.
Distributing the reserves to citizens or spending them on domestic social services—as some critics in China have suggested—would expand the money supply and increase inflation, SAFE said.
Source: http://online.wsj.com
CIC's annual report, published Tuesday, highlighted the fund's increasingly aggressive allocation, with more of the portfolio in so-called alternative investments, which include private equity, real estate and infrastructure.
"We reduced our cash holdings and increased our investments in alternative assets with a view to further diversifying our portfolio," CIC Chairman Lou Jiwei said in the report. Alternative assets accounted for 21% of CIC's overseas investments at the end of 2010, from 6% in 2009, while cash holdings plunged to 4% of its oversease portfolio, from 32%.
CIC was formed in 2007 to improve returns on China's swelling foreign-exchange reserves—currently $3.2 trillion, making them the world's largest—which had been in U.S. Treasury bonds and other low-yield investments. The fund's annual report, released every July, provides a rare window into its finances and investment practices.
About half of CIC's initial allocation of $200 billion was designated for international investments, with most of the rest tied up in stakes in China's state banks, whose value has increased significantly on CIC's books, partly because of accounting changes.
That international allocation "became essentially fully invested" last year, and CIC has been waiting for at least a year for the government to provide additional capital to invest. A senior CIC official said in May that it had made progress toward getting fresh capital and "will eventually work out a mechanism through which we will have continued funding." But no decision has yet been announced, a delay analysts attribute to bureaucratic infighting and debates over the fund's proper role.
Some analysts say last year's performance, which equaled that of 2009 and was roughly in line with key U.S. market indexes, could help CIC get fresh capital. "They're telling a story (in this report) of strong returns but of having little cash to invest," said Rachel Ziemba, a senior analyst at Roubini Global Economics who tracks sovereign-wealth funds.
CIC was widely criticized in China for big losses on its early investments in Blackstone Group LP and Morgan Stanley. CIC officials have defended the fund's performance, saying it is a long-term investor that shouldn't be judged by short-term swings in its holdings.
The fund, which began with a focus on traditional asset classes as stocks and bonds, undertook a review of its approach last year, according to the annual report. It decided in January this year to extend its investment horizon to a decade from five years, a change that allows it to "accept a higher risk-return profile in its investment portfolio in order to better balance short-term pressure and long-term interests," the annual report said.
Continued economic and financial challenges world-wide, including low interest rates, soaring commodity prices and a persistent debt crisis in the euro zone, make this a tricky time to allocate. Some analysts expect CIC to become more reliant on its own investment team, especially in strategically important sectors like precious metals and energy, and less on outside managers. The fund increased its investment staff by almost half in 2010, to 351 people.
"CIC likely will keep very core investment assets to themselves and give something like real estate and consumer goods to third-party managers," said Echo Hu, an analyst Z-Ben Advisors, a consulting firm in Shanghai.
Mr. Lou said the fund entered 2011 with "a cautiously positive" outlook, adding: "While we expect global economic conditions to be further improved, there will still be challenges ahead."
CIC's direct investments CIC last year included $1.6 billion in AES Corp., a Virginia-based power company, which bought it a 15% stake; $416 million in Penn West Energy Trust, based in Calgary, Alberta, Canada (5%); $200 million in Chesapeake Energy, of Oklahoma City.
North America remained the top location for CIC's equity holdings, accounting for 42%, followed by the Asia-Pacific region, Europe, Latin America and Africa.
Separately, China's currency watchdog on Tuesday released a second statement in less than a week rebutting claims made by its domestic critics. The public-relations campaign by the normally secretive State Administration of Foreign Exchange—which manages the vast bulk of China's currency reserves—highlights how the massive stockpile has become something of a political liability at home.
Domestic critics often argue that China's foreign exchange reserves represent the "blood and sweat" of its domestic laborers, and should thus be used domestically instead of invested overseas. In fact, SAFE noted, China's central bank, the People's Bank of China, purchases the foreign-exchange reserves from domestic sellers, giving them newly printed yuan in exchange.
"Companies and individuals are not giving their foreign exchange to the country for free, they are selling it for yuan of equal value," SAFE said in the statement.
Distributing the reserves to citizens or spending them on domestic social services—as some critics in China have suggested—would expand the money supply and increase inflation, SAFE said.
Source: http://online.wsj.com
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