China Investment Corp. - Summary

May 10, 2013

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The Chinese government established China Investment Corp. (CIC) in September 2007 to seek better returns for some of its currency reserves. CIC was initially capitalized with more than $200 billion purchased from the People’s Bank of China, the country’s central bank, in exchange for 1.55 trillion yuan in government bonds issued by the Ministry of Finance and underwritten by the state-owned, Beijing-based Agricultural Bank of China.

CIC originally consisted of two distinct entities with separate operations: China Investment Corp. International Co., which invested assets internationally, and Central Huijin Investment, which managed the fund’s stakes in key state-owned financial institutions and invested at home to bolster the national economy. Central Huijin’s domestic holdings represent about 60 percent of CIC’s assets under management. In 2015 the fund launched a new direct investment platform, CIC Capital Corp. Overseas investment businesses are now undertaken by both CIC International and CIC Capital. CIC International is a financial investor in equity, bonds, hedge funds and real estate and private equity funds. CIC Capital can make direct investments itself. 

CIC became operational just as the U.S. subprime mortgage crisis hit and immediately became entangled in the Western financial bailouts of 2007–08. CIC’s first investment, in New York-based Blackstone Group’s initial public offering, was made even before the sovereign fund officially opened. Blackstone, an alternatives asset management firm, later availed upon the fund to invest more as the firm’s stock price cratered. CIC also bailed out New York–based Morgan Stanley with $5.5 billion in December 2007 and another $1.2 billion 18 months later.

Since the financial crisis, CIC has pursued a long-term investment strategy that seeks to harness emerging-markets growth, particularly in countries that benefit from Chinese demand. For direct investments CIC favors consumer goods, commodities and financial services, in which it prefers to make large purchases of between $100 million and $500 million. In 2012 CIC reviewed its strategy and adopted an endowment model, much like that utilized by Harvard University, allocating its portfolio across an array of traditional and alternative asset classes, reducing its holdings of cash and bonds in favor of equities and long-term investments. In line with this model, CIC invests heavily in low-cost stock indexes to generate beta, or market returns. CIC primarily looks for alpha, or returns above those of stock benchmarks, in private markets and hedge funds.

A founding member of the International Forum of Sovereign Wealth Funds, CIC is committed to improving disclosure and promoting the Santiago Principles.

CIC's Assets Under Management, 2008-'15

Source: China Investment Corp.

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