CIC to invest cash, as global portfolio returns – 2.1 % for the year…

Gao XiqingCIC is poised to invest more than 80 per cent of the assets still allocated to cash in its $100 billion global portfolio, as it outlined in its first annual report to stakeholders it”cannot achieve its goals without productively deploying its capital”.

CIC’s global portfolio, which still had 87.4 per cent in cash at the end of 2008, returned -2.1 per cent for the calendar year, which when combined with the performance from Central Huijin, the subsidiary which manages domestic investments, gave CIC shareholders an overall return for the year of 6.8 per cent.

Slightly more than 50 per cent of the $200 billion that CIC was capitalised with in September 2007 has been allocated for global investment, with the balance in Central Huijin, a wholly owned subsidiary, established to invest exclusively in domestic state-owned financial institutions.

In its first annual report to stakeholders CIC reports its global portfolio ended 2008 with 87.4 per cent of its assets in cash and cash products; 3.2 per cent was in equities; 9 per cent in fixed income securities and 0.4 per cent in other.

By the end of 2007 it had invested $3 billion in The Blackstone Group and $5.6 billion in Morgan Stanley, as well as about $120 million in various small investments. In 2008 only an additional $4.8 billion was deployed into the market, so CIC continued to hold the majority of its portfolio in cash and cash products.

The annual report says “CIC understands it cannot achieve its goals or the goals of its shareholders without productively deploying its capital.”

Meanwhile the top five holdings of Central Huijin are: 67.5 per cent of Bank of China; 50 per cent of Agricultural Bank of China; 48.7 per cent in China Development Bank; 48.2 per cent in China Construction Bank; and 35.4 per cent in Industrial and Commercial Bank of China.

Chairman and CEO, Lo Jiwei, said CIC has made substantial progress in implementing the development
strategy set by the board and coping with a once-in-a-century global financial crisis, while at the same time recruiting a highly qualified domestic and international staff, developing operating plans and strategies, building its organisation and making its first investments.

At the end of May 2009, CIC had 194 staff in its global investment team.

The emphasis in its employees is on global talent who understand the Chinese perspective, with about 73 of its staff having overseas work experience, and 85 overseas education.

The investment division is structured with a CIO, deputy CIO, then five separate departments: asset allocation and strategic research department, public market investment department, tactical investment department, private market investment department and special investments department.

Gao Xiqing is vice chairman, president and CIO – he was formerly vice chairman of the National Council for the Social Security Fund, and before that deputy chairman and CEO of the Bank of China International. Yang Qingwei is the deputy chief investment officer.

Based on decisions made by the 11-member investment committee, investments and mandates are managed by four investment departments.

At the end of May 2009, there were 11 investment staff in the asset allocation and strategic research department, 14 in the public market investments department, nine in the tactical investments, 17 in private markets and 16 in special investments.

The public market investments department implements traditional beta strategies in public market equities, fixed income, commodities, currencies and cash. At this stage virtually all investments are managed by external managers.

The tactical investment department manages internally managed proprietary portfolios illiquid absolute-return investments using external managers.

The private market investments division invests in private markets through third-party managers, co-investment vehicles, partnerships and separate accounts. It also invests in real estate and infrastructure markets.

The special investments department manages in-house direct large scale investments with concentrated positions over a longer time horizon.