China Investment Corp., the nation’s $482 billion sovereign wealth fund, has met the government’s expectations by delivering 5 percent annualized returns in the five years since its creation, the official Xinhua News Agency reported, citing the fund’s president.
CIC, which is seeking a new chairman after Lou Jiwei was named China’s finance minister in March, achieved an 11 percent investment return on its overseas portfolio last year, compared with a loss of 4.3 percent in 2011 , Gao Xiqing, also a vice chairman of the fund, said according to Xinhua. Gao said CIC has done “more good deals than bad deals” and its performance has exceeded the benchmark set by its board of directors, Xinhua reported.
The sovereign fund was set up in 2007 to boost returns on China’s foreign exchange reserves, which grew to $3.44 trillion at the end of the first quarter. Since then, the State Administration of Foreign Exchange, which oversees day-to-day management of the reserves, has created an office with the mandate to seek “innovative use” of the funds.
“CIC is an experiment for China to manage excessive foreign exchange reserves for higher returns,” Li Jie, head of the foreign-exchange reserve research office at the Central University of Finance and Economics in Beijing, said by telephone. “An annual 5 percent return is not horrible given the global financial crisis, but it’s nothing to boast about.”
Li, who has advised the foreign exchange regulator in the past, said SAFE is acting increasingly like CIC, including investing in equities and hiring people from Wall Street.
Xinhua cited CIC’s Gao as saying there’s “no problem” with China having more than one sovereign fund if they have a proper relationship. There should also be an “overall plan,” he was quoted as saying.
SAFE doesn’t publish data on its investment returns.
CIC reported a 2.1 percent loss on its overseas investments in 2008, before posting returns of 11.7 percent in both 2009 and 2010. Lou deployed almost all of CIC’s cash in 2010 as the global economy improved and increased holdings of resources-related companies and bolstered long-term portfolio and private-equity assets.
Fixed-income securities accounted for 21 percent of CIC’s global portfolio as of Dec. 31, 2011, compared with 25 percent in equities, according its latest annual report. Almost 44 percent of its diversified stocks holdings were in North America, according to that report.
CIC has proved that “a diversified investment approach is better than solely buying treasuries,” Xinhua cited Gao as saying. The fund can manage more money as it has yet to reach an optimal size, he was cited as saying. CIC received an injection of $30 billion at the end of 2011.
— With assistance by Xin Zhou