CIC rebounds after alternatives boost

After a disappointing 2011, China's sovereign wealth fund sharply increased its allocation to private equity, real estate and infrastructure, causing a spike in its returns last year.

China Investment Corporation’s net global returns during 2012 spiked to 10.6 percent, up from a dire -4.3 percent in 2011, according to CIC’s annual report released this week. It said the rebound was largely a result of the sovereign wealth fund's long-term investments, namely alternative asset classes. 

The $575 billion Chinese SWF has 32.4 percent of its portfolio allocated to long-term investments worldwide, made up of private equity, infrastructure, mining and real estate investments – representing the largest portion of CIC’s commitments to any asset class.

In terms of capital, during 2012 CIC’s commitments to private equity, real estate and infrastructure saw the largest increase year-on-year, with the government fund adding approximately $51 billion to the asset class over the course of the year.  It brought the fund’s total long-term equity investments to $356 billion from $305 billion in 2011, according to the report.

Additionally, CIC’s investment income from its long-term assets spiked to $63.4 billion, up from $53.4 billion in 2011. In comparison, unrealised gains across all asset classes – including long-term, public equities and government bonds, totaled $12.2 billion in 2012, up from a loss of $11.4 billion in 2011.

CIC’s investment income from its long-term assets — investments in private equity, infrastructure, mining and real estate — spiked to $63.4 billion, up from $53.4 billion in 2011.

Source: CIC  statement 

“CIC attaches great importance to long-term investment and has drawn on its long investment horizon to achieve steady long-run returns,” the report stated. “CIC remains committed to fostering long-term and win-win relations with its business partners and investee companies.”

CIC has also increased its dependence on external managers for its investments. Around 64 percent of the SWF’s assets were externally managed by the end of 2012, versus 57 percent by the end of 2011. The report did not specify which assets were externally managed.

The annual report comes shortly after CIC ended a six-month-long search for a chairman. In July, CIC confirmed the appointment of its new chairman in Xuedong Ding, formerly a vice secretary general of China’s cabinet and vice finance minister. He replaced Jiwei Lou, who left CIC in March to become finance minister.

Although the institution has experienced high turnover, including within its private equity team, it appears to remain committed to private equity. 

At a recent industry conference, head of private equity at CIC, Linbo He, told delegates that a tough fundraising environment for private equity globally has created a better investment environment for private equity.

He explained that over the past 20 years, during periods when fundraising was flat, private equity performed well, while during bullish fundraising periods, such as 2004 to 2008, private equity performance was “very bad”.  

“If past history has taught us something about the future, [it is that] we should have more confidence in investing in private equity right now.”

Clare Burrows contributed to this report.