Chinese SWFs to continue pursuit of overseas assets

Faced with a slowing economy and low returns on domestic assets, Chinese sovereign wealth funds are set to continue foreign investments in the medium term, according to the latest Sovereign Wealth Funds Report by CEX-Invest in Spain and IE Business School.

Collectively managing assets of over $2 trillion, China Investment Corporation, State Administration of Foreign Exchange, National Social Security Fund, Hong Kong Monetary Authority, Silk Road Fund and China-Africa Development Funds are set to lead a new foreign direct investment push in the Belt and Road Initiative’s countries and Europe. Preferred targets for the six investors are real estate and infrastructure companies operating in Europe or Australia, the report found.

It is also not surprising to see more activity from the funds, because they are not subject to the limitations and restrictions imposed by the Chinese government on foreign investments. Last year, the State Council issued guidance on overseas investments, formally setting boundaries and distinguishing between ‘encouraged’, ‘restricted’ and ‘prohibited’ categories. ‘Restricted investments’ are those carried out in the sensitive countries and regions which have no diplomatic relations with China, as well as “irrational” acquisitions in sectors like real estate, hotels, entertainment and sports.

2017 has been CIC’s most active year in terms of direct investments, sealing deals worth approximately $18.5 billion during the year. Its $13.4 billion acquisition of Logicor, a pan-European logistics company was the largest deal made by a sovereign wealth fund in 2017. In March last year, Airbnb closed a $1 billion funding round that valued the company at $31 billion. The round included a $100 million investment from CIC, a key partner as the company expands its presence in China. And in November, the fund partnered with Goldman Sachs for a $5 billion private equity fund to invest in US advanced manufacturing companies seeking access to China’s domestic market.

CIC has been at the forefront of the China’s Go Global strategy. Of its $813 billion of assets, as much as 40 percent is invested overseas. Of CIC’s overall portfolio, approximately 38 percent is invested in alternative assets, according to its latest annual report.

It has also been aggressively engaged in the organisational build-out and ramp-up of its newest subsidiary – CIC Capital, which has a mandate to pursue direct investments in the broader context of CIC’s overall portfolio – the report said. In 2016, CIC disclosed that CIC Capital had made investments in 16 projects, with a total commitment of about $5 billion. These included investments in core infrastructure in ports, railway, pipeline and telecommunications in Europe, Oceania and Latin America.