China’s sovereign wealth fund posted an 11.7 percent return on its overseas portfolio in 2009, reversing a loss a year earlier, as it raised bets on commodities to benefit from a rebound in global markets.
Net income surged 80 percent to $41.7 billion. Total return on equity, including gains from the overseas portfolio and holdings in local banks, was 12.9 percent, compared to 6.8 percent in 2008.
China Investment Corp., facing an environment that’s “full of challenges” this year, will “timely” adjust asset allocation amid an unstable global economy and volatile markets, the company said in its annual report released yesterday. The $332 billion fund spent $58 billion globally last year, with a focus on publicly traded equities and bonds, as Chairman Lou Jiwei quickened commodity-related investments from U.S. power producer AES Corp. to Indonesia’s PT Bumi Resources.
“The CIC’s focus on resources should have contributed to strong performances in 2009,” Rachel Ziemba, London-based senior analyst at Roubini Global Economics, said before the announcement. “The truth will come in 2010 and beyond given the risks to the risky assets that dominate CIC’s portfolio.”
Beijing-based CIC is asking the Chinese government for more funds to invest, Executive Vice President Jesse Wang said last month. Cash holdings dropped by 55.4 percentage points to 32 percent of its portfolio as of Dec. 31, according to the annual report.
Sovereign wealth funds globally have had an increase in assets as markets rallied last year. The MSCI World Index surged 27 percent in 2009.
Temasek Holdings Pte, Singapore’s state investment firm, this month said assets climbed 43 percent to S$186 billion ($135 billion) in the year to March 31.
CIC had 36 percent of its global portfolio in equities and held 26 percent in fixed-income products as of Dec. 31, according to the annual report.
The MSCI World Index has dropped 3 percent this year as the European debt crisis and China’s efforts to curb asset bubbles threatened the global recovery. Bumi Resources, the Indonesian coal producer in which CIC made its largest investment announced in 2009, has fallen nearly 30 percent.
“CIC should fare well in 2010 as they have renewed confidence, a more experienced organization, and clear strategy,” Victoria Barbary, senior analyst at Monitor Group in London, said before the announcement. “But the global economy is quite volatile so there are far more external forces that have to be understood and responded to.”
Penn West, Apax
CIC in May agreed to invest C$817 million ($790 million) in a new oil-sands venture with Canada’s Penn West Energy Trust, gaining a stake in the world’s largest crude deposits outside Saudi Arabia. The company bought stakes worth about 650 million euros ($845 million) in Apax Partners LLP’s private-equity fund from investors, a person familiar with the transaction said in February.
“Our preliminary data for the first half of 2010 suggests that CIC is continuing to pursue its strategy of investing in natural resources and sharing risk through partnerships and managed funds, as well as some exposure to private equity,” Barbary said. “Again their strategy seems to be reasonable returns, with a risk profile that limits the downside, and protects against dollar-based inflation/devaluation.”
The risk in CIC’s global assets increased “to some extent” last year as it deployed cash holdings, though that was offset by diversification across asset classes, the sovereign wealth fund said.
So-called “scattered” investments accounted for 77 percent of the overseas portfolio excluding cash and equivalents, with the rest in “concentrated” holdings, the annual report said without giving definitions.
To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net