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11 years of CIC and Blackstone – timeline

The world's second-biggest sovereign wealth fund shed its 11-year investment in the US private equity giant. Is this the end of the road for the partnership?

China Investment Corporation, the world’s second-biggest sovereign wealth fund, completed the sale of its stake in private equity powerhouse Blackstone in March, 11 years after acquiring nearly 10 percent of the firm.

CIC chairman Tu Guangshao later unveiled the fund’s three-year roadmap to boost its exposure to alternatives and direct investments to up to 45 percent or more of its overseas portfolio, to driver better returns. Alternative investments made up about 37 percent of its global portfolio as of the end of 2016, according to its latest annual report.

In an interview with Bloomberg on 16 March, Tu said CIC is also looking to “increase allocations to some top-tier investment firms that it has built good long-term relationships with, especially those that it can co-invest with”. He did not name specific managers.

It is unclear why CIC sold all of its shares in Blackstone. Market participants Private Equity International spoke to said it was “business as usual” for a large investor such as CIC.

“Investors like CIC have portfolios to manage and they look at the dynamics of primary investments, secondaries and direct investments and decide what combination of exposure they want to have over the next three to five years and they make adjustments accordingly,” said a Hong Kong-based veteran fundraising specialist. “It could be that CIC will focus on more direct investing and reduce other passive holdings that could be more beneficial in the near-term for its return profile.”

CIC reported a 6.2 percent return on its overseas investments in 2016, compared with a negative 3 percent return in 2015, despite geopolitical and macroeconomic headwinds.

The $900 billion fund has been vocal about its pursuit of overseas assets. Tu said in Hong Kong in January that CIC is seeking more direct investments in the US in an effort to continue diversifying its portfolio. The investor is targeting opportunities in technology, manufacturing and infrastructure, and could also invest in sectors such as healthcare.
In November CIC also partnered with Goldman Sachs for a $5 billion private equity fund that will invest in US manufacturing companies what want to have a China presence.

CIC, through its subsidiary Beijing Wonderful Investments, picked up an almost 10 percent stake worth about $3 billion in Blackstone before the US private equity giant’s IPO in 2007. It was one of CIC’s first major investments since its official establishment in September of the same year. A year after the acquisition, CIC increased its stake to 12.5 percent, Blackstone said in its 2008 annual report. It is understood CIC trimmed its stake over the years, and at the end of last year held a 4.5 percent stake in the firm, according to local media reports.

“As of February 22 this year, Beijing Wonderful Investments no longer owned any non-voting common units,” Blackstone said in its latest 10-K filed with the US Securities and Exchange Commission.

A source with knowledge of the matter said CIC’s divestment over the years was “roughly breakeven and provided modest gains”.

Blackstone’s stock price has seen wild swings over the years. Its all-time high was $43 in May 2015, and the low, when markets plummeted in early 2009, $4. A decade on, the firm’s shares are trading at just a few dollars above their $31 New York Stock Exchange debut.

The source added: “There hasn’t been much CIC-Blackstone co-operation with regard to private equity co-investments, except for a few real estate deals Blackstone offloaded to CIC”. Notable transactions include the west London office project Chiswick Park for £780 million ($1.3 billion; €1 billion), in a deal completed in January 2014 and the €12.3 billion sale last year of European logistics provider Logicor, Europe’s largest ever private equity real estate deal.

CIC’s move could not be more timely – the sale comes amid trade tensions between the China and US, with China’s commerce ministry saying in March it strongly opposes a move by President Donald Trump to impose tariffs of up to $60 billion on steel and aluminium imports from the country.

Industry watchers tell PEI they do not read anything political in this development. Blackstone chief executive and sometime advisor to President Trump, Stephen Schwarzman also said in a Bloomberg TV interview on 15 March that theirs will continue to be “a very long-term productive relationship”.

“They are terrific partners to us, we do lot of other things with them with enormous success… In fact, when we started with them they only had two employees. We helped them with their internal systems and infrastructure and we know just about virtually everybody there. It has been a very productive relationship on a mutual basis,” Schwarzman said.

View CIC and Blackstone’s longstanding relationship in the timeline below.