China Sovereign Fund Has Loss on Commodities, Negative Rates

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  • CIC had annualized return of 4.58 percent since 2007 inception
  • The fund’s total assets exceeded $810 billion last year

China’s $813.8 billion sovereign wealth fund posted its first loss on overseas investments in four years last year as commodity prices sunk, while stock and bond returns were damped by negative interest rates and a strong U.S. dollar.

China Investment Corp. had a loss of 2.96 percent in the year ended December, compared with a 5.47 percent gain a year earlier, according to the Beijing-based company’s 2015 annual report released Friday. Net income at the fund, which holds government stakes in China’s biggest banks, fell 17 percent to $73.9 billion, the report showed.

The MSCI World Index slipped 3 percent last year as expectations of U.S. interest-rate increases and slow global growth hurt stocks, commodities and currencies. CIC Chairman Ding Xuedong in January 2015 set up a direct-investment unit to improve efficiency and jointly seek opportunities with Chinese companies. Investments last year ranged from offices in Australia and shopping malls in France and Belgium, to Turkey container port Kumport and Tank & Rast, a German concessionaire of motorway service areas. 

“2015 was a challenging year for both the global economy and China Investment Corporation,” Ding said in the report. “The economic recovery continued on a sluggish path, big fluctuations reverberated in the international financial market, and competition in the investment industry became ever fiercer.”

Infrastructure, Real Estate

Last year’s loss was the fund’s first since 2011 and dragged its annualized return on overseas investments since inception to 4.58 percent, down from 5.66 percent through 2014. The sovereign wealth fund was established in 2007 to invest the nation’s swelling foreign-currency holdings.

The Bloomberg Commodity Index slumped 25 percent last year as slow global growth sapped demand, weighing on the value of Beijing-based CIC’s commodities and energy holdings. While energy accounted for just 5 percent of CIC’s public equities portfolio as of Dec. 31, down from 7.5 percent in 2014, it included some of the fund’s largest investments, including a $1.6 billion deal in U.S. power company AES Corp. in 2010, and in 2011 a $3.2 billion stake in GDF Suez SA, the French utility that has since changed its name to Engie SA.

CIC boosted holdings in infrastructure and real estate to expand returns on stable long-term investments, completing nine property deals during the year, spokeswoman Liu Fangyu said. The company sold a 299 million pound ($396 million) investment at Canary Wharf in London to pocket $1.1 billion in cash, Liu told reporters in Beijing.

Not Bad

CIC’s 2015 performance was “not too bad considering the high volatility in financial markets last year and the low inflationary environment,” Johnny Fang, a Shanghai-based analyst at Z-Ben Advisors Ltd., said by e-mail, citing negative returns among other sovereign wealth funds. “The long-term return is considerably good, given that its main purpose is to maintain the true value of its foreign-exchange holdings.”

Public equities, which refer to the stocks of companies traded on exchanges, rose by 3.4 percentage points to 47.5 percent of overseas holdings as of Dec. 31, while fixed-income securities dropped 0.2 percentage point to 14.4 percent, CIC said. Absolute-return investments, which include hedge funds, grew to 12.7 percent.

The U.S. accounted for 46.3 percent of CIC’s public-equity investments, compared with 45.6 percent a year earlier, according to the report. Financials, the biggest category by industry, made up 21.5 percent, compared with the previous year’s 22.6 percent. The S&P 500 Financial Sector Index dropped 3.5 percent last year.

CIC was part of a consortium close to buying an 81 percent stake in a natural gas pipeline network in Brazil from the Latin American nation’s troubled state-run oil company Petrobras, people with direct knowledge of the matter said last month. A group backed by CIC withdrew its bid for control of Yum! Brands Inc.’s China business after failing to agree on a price, people familiar with the talks said earlier.

The government appointed Shanghai Vice Mayor Tu Guangshao as CIC’s vice chairman and president earlier this month, replacing Li Keping who served those posts since 2014. Tu, born in 1959, was previously head of the Shanghai Stock Exchange and a vice chairman of the China Securities Regulatory Commission, according to CIC’s website. 

— With assistance by Dingmin Zhang

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