China’s sovereign wealth fund is targeting infrastructure and real estate investments in the US and Europe as part of a long-term strategy being developed for its newly established subsidiary, says the fund’s chief executive.
China Investment Corporation (CIC) grew its total assets 14.3% last year to $746.7 billion, a rise of $93 billion from the $653.2 billion total in 2013.
The fund’s investment return for the year was a rather modest 5.47%, down from 2013’s 9.33% and 2012’s 10.6%. The annualised return since inception in September 2007 is 5.66%, according to CIC’s annual report released on July 3.
“Yields of major financial assets slid and commodity prices tumbled, further fueling competition for good-quality projects on a global scale,” noted CIC chief executive Ding Xuedong.
Liu Fangyu, a spokesman at CIC, said part of the reason for the lower return was the global economic slowdown, particularly in the Eurozone, combined with a strengthening dollar on non-dollar assets.
Last year’s return was mainly driven by equities. In 2014, CIC increased its exposure to public listed equity from 40% to 44%, adding more US equities to the portfolio mix. Continuing the trend set in 2013, the fund further reduced its allocation to fixed income, to 14.6% from 17%, across both developed and emerging sovereign bonds.
The state fund started to operate a new self-developed portfolio analysis and allocation system in late 2014, offering an integrated solution for the whole process in allocation analysis. Ding noted the fund has also developed its portfolio overlay management capabilities in a bid to facilitate overall portfolio optimisation.
Despite a rise of outsourcing in 2013, CIC maintained its proportion of externally-managed assets in 2014. Overall, external managers run $505 billion for CIC, representing 67.7% of its overseas portfolio. Ding said that CIC has steadily improved its in-house investment capabilities.
Earlier this year, CIC established a new subsidiary, CIC Capital Corporation, a dedicated entity for overseas direct investments. It will be CIC’s third subsidiary, after CIC International and Central Huijin.
CIC Capital’s initial pool of assets is $5 billion, though CIC plans to expand its capital size to $50-100 billion, according to Chinese media reports, through debt financing or other channels. Liu said CIC will put its existing direct investments into this new subsidiary, while the fund does not have a timeframe for capital injection.
Ding confirmed that CIC is looking at more direct investments in its long-term global assets, including infrastructure and real estate in the US and Europe, because these assets usually provide a stable cash flow amid the backdrop of slow economic recovery.