China Investment Corporation (CIC) is on a concerted drive to expand its exposure to private markets globally, continuing a push that has seen its allocation to the asset class surpass $20 billion, according to its latest annual report.
Last year the sovereign wealth fund – believed to be at least $1 trillion in size, despite its officially published figure of $814 billion as of end-2016 – raised its alternatives exposure, as planned, and cut its allocation to traditional bonds.
This came as it posted an investment return of 6.22% for 2016, after recording a loss of -2.96% the year before, the fund said in its report, published yesterday.
CIC’s alternatives allocation accounted for 37.24% of its overall portfolio as of December 2016, up from 34.83% the year before. It identifies alternative assets as including hedge funds, multi-asset investments, private equity, private credit and real assets.
Meanwhile, the fund's public equity exposure fell to 45.87% from 47.47%; fixed income (including structured products) rose to 15.01% from 14.44%; while ‘cash and others’ shrank to 1.88% from 3.26%.
Private asset drive
CIC signed 16 private-market deals worth $5 billion last year, but this year it has already gone well past that mark.
Earlier this month, CIC joined a consortium led by TIAA Private Investments and Antarctica Capital to buy InterPark, the largest owner-operator of parking infrastructure in the US from Alinda Capital Partners. And in June private equity group Blackstone agreed to sell European warehouse firm Logicor to CIC for €12.25 billion ($13.8 billion), in one of the biggest ever direct real estate investments.
These deals followed CIC's opening of a New York office in May this year to replace Toronto as its North America base in another statement of intent.
Moreover, sources told AsianInvestor that the fund was expanding its footprint further into real assets such as agriculture and forestry.
CIC said it signed or approved 48 contracts for investment in private equity, real estate and private credit last year, across both funds and co-investment. For PE investment, it employs around 80 external managers worldwide, added the annual report.
Moreover, CIC in April this year launched a public account on WeChat – China's leading social media network – to underscore its intentions. It has published three articles through the platform, citing foreign research institutions showing that SWFs have been increasing investments in private equity, real estate and venture capital.
CIC's offshore push last year comes despite its worries about the economic and political climate in various developed markets. “Complexities and uncertainties in the global economy again prevailed in 2016,” said Tu Guangshao, the fund's vice chairman and president, in the report.
“The United States, Europe and Japan were plagued by high debt, languishing productivity growth and a serious demographic problem of an aging population,” he noted. “Emerging economies continued to suffer from capital outflows, trade protectionism and reduced direct investments, leading to weak growth.”
Tu said global growth for 2017 should gain pace, but identified rising uncertainties in global politics as potential risk factors.
Structured product push
Meanwhile, CIC revealed a big shift last year into structured products in its fixed-income portfolio for the first time, at the expense of bonds.
As of end-2016, 53.96% of its fixed-income exposure was to developed-market sovereign bonds, down from 64.16% a year ago; 27.07% was in corporate bonds, down from 30.71%; 3.55% in emerging-market sovereign bonds, down from 5.13%; and 15.42% in ‘structured products and others’.
On the public equity side, CIC raised its US allocation last year (to 51.37% from 46.32% of its global equity portfolio) and cut its exposure to stocks in other developed markets. Meanwhile, it reduced its allocation to non-US developed-economy equities to 37.61% from 42%, while keeping its EM equity exposure flat at 11.02%.
The fund's ratio of in-house-managed assets to externally run investments remained at around 34% to 66%.
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