CIC weighs into alternatives

The China Investment Corporation deployed nearly 30 per cent of its cash, or $35.7 billion, in 2010, mostly into private equity, real estate, infrastructure and other direct investments with its alternatives allocation increasing from 6 to 21 per cent in the year.

The CIC – which appointed a new executive director and chief investment officer this month, Li Keping, replacing Gao Xiqing (former CIO) (pictured) and Zhang Hongli (executive director) – returned 11.7 per cent in its global investment portfolio for the year.

Equities still make up the majority of the portfolio at 48 per cent, up from 36 per cent the year before, with the majority invested in North America (41 per cent of diversified equities), followed by Asia Pacific (29.8 per cent).

Financials dominate the equities portfolio (17 per cent), followed by energy (13 per cent), and materials (12 per cent).

Of the direct holdings, a $1.58 billion investment in a global power company, AES, was by far the largest in 2010.

Of its 27 per cent fixed-income allocation, 38 per cent is invested in government bonds, 32 per cent in corporate bonds, 12 per cent in asset-backed securities, 9 per cent in government agency bonds, and 9 per cent in other structured products.

At the beginning of this year the CIC’s board extended its investment horizon to 10 years, and made changes to the asset allocation, risk management and performance evaluation of the portfolio in line with this.

In the annual report, chairman and chief executive of CIC, Lou Jiwei, said: “Such a change underscores the long-term perspective in our investment strategies and enables us to pursue higher long-term financial returns with increased risk tolerance against market volatility.

In what was a busy year for the sovereign wealth fund, the CIC hired more than 100 investment staff, bringing its team to 351, and in May this year reorganised its investment departments to “promote greater synergy and efficiency”.

The four investment departments are:

1. the department of public equity which implements active strategies by using external funds managers and its proprietary trading

2. the department of fixed income and absolute return which manages all fixed income and portfolios as well as credit derivatives, hedge fund, multi-asset and commodity portfolios

3. the department of private equity which focuses on real estate, industry and technology, financial services, consumer goods and services, health care and biopharmaceutical, and

4. the department of special investment which executes and manages investments in energy, mining, precious metal, agriculture and infrastructure sectors.

“This approach fosters development of more in-depth sector expertise. More importantly, it allows managers to understand what is taking place across a sector value chain.”

The CIC was initially capitalised with $200 billion in September 2007, of that slightly more than 50 per cent was allocated to global investments, which invest exclusively outside China. The balance is invested in domestic financial institutions managed by Central Huijin Investment.