CIC boosts co-investments to bolster returns

The Chinese sovereign wealth fund said its share of private equity co-investments and club deals rose in 2015 as the outlook for returns dimmed amid 'ever-growing downside risks' in global markets.

China Investment Corporation (CIC) grew its share of private equity co-investments and club deals in 2015 in an effort to bolster overall returns amid “ever-growing downside risks” in global markets, the Beijing-based sovereign wealth fund said in its annual report published July 22 .

CIC, which manages some $814 billion in assets, said it responded to adverse market conditions in a number of ways: by adding more high-performing private-equity funds to its portfolio, finding investment opportunities in private equity credit, and seeking out strategic partnerships with “a few outstanding managers”. As a result, the proportion of co-investments and club deals in its portfolio rose, CIC said.

According to data from PEI data, CIC invested in Hong Kong-headquartered AGIC Capital's Asia-Germany Industrial Promotion Capital Fund I in 2015, which invests in European small and medium enterprises that plan to expand in Asia.

CIC's co-investments include joining with UK-based real estate investment manager AEW Europe to acquire a fleet of 10 malls in France and Belgium for €1.3 billion in July 2015, and partnering with German fund manager Hannover Leasing in January last year to acquire an office complex in Brussels for €270 million.

Also in January, CIC launched its direct investment platform, CIC Capital Corporation, to make direct investments globally and to manage its assets.

CIC invests across several asset classes. Publicly-listed companies – which make up the lion's share of CIC's global portfolio – grew its share from 44.1 percent in 2014 to 47.47 percent, while private equity – a segment CIC calls “long-term investments”, and includes commodities, real estate, and infrastructure – retained its status as the second-biggest asset class, though its share of the allocation mix fell to 22.16 percent from 26.2 percent a year earlier. CIC also invests in hedge funds, fixed income, and cash and US Treasury bills.

CIC's 2015 returns reflected an increasingly challenging environment for yield-hungry investors. For the fund as a whole, net annual return in 2015 slumped to minus 2.96 percent from 5.47 percent a year earlier. Its 2015 net cumulative annualised return – which calculates CIC's return since the fund was formed on 29 September 2007 – also fell, to 4.58 percent from 5.66 percent in 2014.

In its report, Ding Xuedong, chairman and chief executive officer of CIC, said the fund had “prudently reduced or exited investments in some projects”, which generated an inflow of approximately $10.6 billion. One such exit was the sale of CIC's stake in Russian potash producer Uralkali PJSC in September 2015 for approximately $2.5 billion.

CIC also ramped up investments in real estate and infrastructure – including the $2.45 billion acquisition of Australian office spaces from Investa Property Group and in the $3 billion purchase of German motorway services provider Tank & Rast – and increased its presence in emerging industries such as healthcare and advanced manufacturing.

2016 is likely to be another year of sluggish growth, Ding said, given uncertainties such as Brexit, fluctuations of major currencies, and the Fed's “fickleness on raising rates”.

Last week CIC appointed former Shanghai executive vice mayor Tu Guangshao as the fund's new vice chairman and president. CIC's board of directors also said Guiping Liu will no longer serve as executive vice president of CIC. The reason for his departure has not been disclosed and CIC has yet to announce Liu's replacement.