FT : CIC gears up for $30bn drive

FT, Monday February 11 2008
By Jamil Anderlini in Beijing

China’s $200bn sovereign wealth fund is preparing to grant mandates of as much as $30bn to international fund managers and is expected to receive another injection of capital for its off-shore investments from the country’s $1.500bn in foreign exchange reserves.

China Investment Corp is about to notify shortlisted candidates from more than 100 applicants hoping to manage its investment in global equity markets and is planning to put about $4bn into a fund managed by JC Flowers, the private equity firm, that will target ailing financial institutions.

Last week, CIC also invited international fund manager to manage its global fixed-income investments. According to people involved in the application process, the fund plans to grant equity and fixed-income mandates totalling as much as $30bn, nearly half the amount it has available for all its off-shore investments.

Analysts say CIC is likely to get another large cash infusion from the central bank later this year as it bears its current investment limit. “The initial $200bn was basically the first batch and if CIC gets their investment framework right and shows it is capable of earning decent returns there is no question they will be allowed to invest more,” said Qu Hongbin, chief China economist for HSBC.

CIC was formally established in September and has been busy recruiting managers and establishing internal processes while making large headline investments.About one third of the fund’s $200bn was used to absorb Central Huijin, the state investment vehicle that holds the government’s stakes in China’s largest state-owned banks and securities brokerages. Another $67bn, or so, has been set aside to recapitalise Agricultural bank of China, Everbright Bank and China Development Bank.

The remainder is reserved for off-shore investments, including a $3bn stake in US private equity firm Blackstone, a $5bn investment in Morgan Stanley and a $100m stake in the Hong Kong initial public offering of a state-owned company Chinese building company.

China’s foreign exchange reserves are increasing by nearly $40bn a month, reaching $1.530bn by the end of December. The bulk of these funds is invested in low-risk overseas assets such as governments bonds, particularly US Treasuries. Bejing has mandated CIC to make riskier investments in the hope of earning better returns on a portion of those reserves.

But CIC and the large Chinese financial institutions that have ventured abroad are under immense pressure to make smart investments rather than just shovel money out of the door. CIC’s Blackstone investment has been criticised as it has lost more than 40 per cent of its value after a steep drop in Blackstone shares