China State Fund Has 2.4% Overseas Investment Loss for 2018

(Bloomberg) -- China Investment Corp., the nation’s $941 billion sovereign wealth fund, reported a 2.35% loss on its overseas investments last year amid tumbling global equity markets.

Chairman Peng Chun didn’t strike an optimistic note about the future either, telling reporters in Beijing that the investing environment is “more difficult” this year due to rising asset-price volatility, unilateralism, slowing global growth and tighter regulatory scrutiny on foreign investments.

Last year’s loss compares with a record 17.6% gain in 2017. Peng, speaking at the release of CIC’s 2018 annual report on Friday, said that the firm was seeking to lower risk and leverage in its portfolio as uncertainties rise.

Peng took the helm in April, two years after his predecessor left, and has been seeking new ways to bolster returns as oil-supply disruptions add to prolonged trade tensions between China and the U.S., complicating the prospect for global growth. CIC aims to boost non-public investments to 50% by the end of 2022, it said in a statement.

“Such a situation indeed posts a bigger challenge to a large institutional investor like us,” Peng said. “There are a lot of uncertainties.”

He said CIC would instead aim to make the most of more certain opportunities by boosting investment along China’s Belt & Road initiative and focusing on companies that have potential in Asia’s biggest economy.

Rolling Returns

The loss adds pressure on CIC’s new management because it lowers the firm’s 10-year rolling annualized yield, which Beijing uses to evaluate the fund’s performance. The fund hasn’t received any additional capital from the government for investing overseas since 2012.

The decline did however beat CIC’s benchmark by 371 basis points, a performance that was above average among global peers, Peng said. The 10-year annualized yield through 2018 was 6.07%, exceeding its target by 45 basis points. That gauge has risen to 6.2% through June, he said, as global equities rallied this year. The MSCI World Index is up 17% since January, compared with a 10.4% loss last year.

Net income, which also includes profit from stakes in China’s biggest banks, fell 37% amid fair-value losses from investments, according to the annual report.

Alternative and direct investments accounted for 44.1% of CIC’s overseas portfolio as of Dec. 31, up 4.8 percentage points, according to the annual report. The company also boosted co-investments by a record last year and explored more types of physical assets, it said without elaborating.

CIC was created in 2007 to pursue higher returns on China’s then surging foreign-exchange reserves. But that stockpile has shrunk about one-quarter from a peak in 2014, reducing any incentive for Beijing to hand over any more money.

CIC had previously estimated a loss of between 3% to 4% for 2018, Bloomberg reported in April. Norway’s $1 trillion state fund dropped 6.1% over the same period, its worst performance since 2011.

To contact Bloomberg News staff for this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Peter Vercoe

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With assistance from Bloomberg