Global ambition

China’s CIC is ramping up its foreign private equity investments, while the country’s other LPs, including the NSSF, remain stuck at home.

While many foreign private equity firms have been focused on getting into China, Chinese sovereign wealth fund China Investment Corporation (CIC) has been quietly diversifying its private equity portfolio by investing in and collaborating with funds and firms outside the country. 

Earlier this year CIC invested $1.5 billion, or $500 million each, into custom accounts with secondary specialists Lexington Partners, Goldman Sachs and Pantheon Ventures, according to various media reports. 

The $200 billion sovereign wealth fund has also announced a strategic collaboration agreement with Intel Capital, the chipmaker’s venture capital arm. The two stakeholders plan to leverage CIC’s resources and Intel Capital’s technology expertise to invest globally in companies across sectors including clean technology, software and services and mobility.

CIC also agreed a deal to invest up to €800 million into Apax Partners’ €11.2 billion seventh European fund in December 2009, giving existing LPs in the fund the opportunity to waive or reduce their remaining commitments. CIC also took a minority stake in the firm’s management company as part of the deal. It already has a stake in US private equity giant The Blackstone Group, the acquisition of which marked the firm’s first foray into private equity in 2007.

Of course, CIC is not only investing overseas. In July 2009, it acquired a 40 percent stake in CITIC Capital, which manages funds investing in the US, Japan and Kazakhstan, but whose primary focus is on China. 

While CIC has gone about expanding its overseas private equity portfolio quite rapidly, things are not quite so straightforward for other Chinese institutions.

“As it is hard to move money out of China, other Chinese institutions that want to invest outside the country will face regulatory hurdles as their holdings are in RMB,” says Hubert Tse, a Shanghai-based partner at Boss & Young. “I think CIC is the only Chinese LP to invest wherever it wants to as its core activity is investment.”

Little progress seems to have been made on the National Social Security Fund’s (NSSF) foreign investment ambitions. China’s largest LP in terms of commitments to domestic funds, the fund first sought permission from authorities to invest in foreign private equity funds in May 2009, sources told Reuters at the time. The NSSF, which was only allowed exposure to domestic private equity in 2008, is working on a proposal with China’s ministry of finance and the ministry of human resources and social security, which oversee the pension’s activities.

If the NSSF is granted approval to invest outside China, it would be good news for the asset class. The assets under management of China’s largest pension fund are predicted to rise to RMB1 trillion this year (€108 billion; $146 billion), stretching its 10 percent allocation to the asset class to RMB100 billion, Dai Xianglong, the NSSF’s chairman said at a Shanghai conference, Reuters reported in October 2009. 

Regulations permitting, non-Chinese private equity firms have something to look forward to besides jockeying with each other and local firms to raise RMB funds. Just don’t expect a great outflow of capital anytime soon.