China fund`s global spending power up GBN

Its sovereign wealth fund now has $90 billion to spend on assets abroad. China's $200 billion sovereign wealth fund now has as much as $90 billion to spend on assets abroad, an increase of more than 30 per cent on its original allocation, its president and chief investment officer told western bankers in Beijing on Wednesday.

The China Investment Corporation initially had about $66 billion for investment offshore but Gao Xiqing said it had changed that after the government decided less would be needed to restructure Agricultural Bank of China, China Development Bank and other struggling state-owned financial institutions. Gao said most of CIC’s enlarged offshore allocation would be given to external managers to invest in non-renminbi-denominated equities, fixed-income products and alternative investments including private equity funds, hedge funds and possibly commodities.

The fund has already chosen a number of global fund managers through an open bidding process to invest in offshore equities on its behalf but has not yet released their names as it is still negotiating contract terms. CIC emerged in May last year when it invested $3 billion in a pre-IPO stake in US private equity firm Blackstone — before the fund was even formally established. It has since invested a little over $5 billion for a 9.9 per cent stake in Morgan Stanley, $200 million in Visa’s IPO and $100 million in the Hong Kong IPO of China Railway Group.

In the case of Blackstone, the fund’s investment has lost more than a third of its value. Its ­Morgan Stanley stake has lost about 5 per cent. Both of CIC’s smaller investments have risen significantly.
When CIC was established, it was given $200 billion with a mandate to invest in roughly three equal parts — one-third to take over Central Huijin Investment, the entity that holds most of the government’s stakes in large state-owned banks and brokers; one-third for overseas investments; and a third to bail out the unreformed state banks.

At the end of last year, CIC recapitalised China Development Bank with $20 billion as part of the process of transforming it from a policy arm of the government into a commercially run bank. The reallocation of CIC funds suggests the government intends to restructure Agricultural Bank with a far smaller amount than earlier estimates, which went as high as $50 billion.

CIC has recently become more cautious in the face of intense domestic criticism over its investment record and a frosty reception from foreign governments because of a perceived lack of transparency and questions over political motivation. Fund officials have said the United Kingdom is the only major western power that has consistently welcomed CIC. Lou Jiwei, CIC’s chairman, has likened the fund to a Beijing taxi driver who wakes up each morning knowing he must make Rmb300 million that day to cover his expenses.