China Sovereign Fund Revamps Overseas Investment Committees
Genuine bundles of Chinese one-hundred yuan banknotes and U.S. one-hundred dollar banknotes are arranged for a photograph at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea. (Photographer: SeongJoon Cho/Bloomberg)

China Sovereign Fund Revamps Overseas Investment Committees

China’s $1 trillion sovereign wealth fund is restructuring how its decides on international investments as it tries to boost efficiency and make better progress on a goal of increasing the share of private assets in its global portfolio.

China Investment Corp. formed two committees earlier this month to approve investments in public and non-public assets, replacing bodies at units CIC International and CIC Capital that previously had overlapping responsibility for the process, according to people familiar with the matter. The new structure for overseas investing should provide a clearer mechanism to implement asset allocation strategies, they said, asking not to be identified discussing private matters.

The change will help Beijing-based CIC lift direct and alternative investments to half of a global portfolio worth more than $300 billion by the end of next year, a target set in 2018. The fund’s efforts to limit exposure to volatile public markets have been complicated by market rallies that led to an increase in the value of its holdings of bonds and stock. The pandemic and a rise in protectionism also made private deals more difficult.

Alternative assets dropped by 2 percentage points to about 42% by the end of 2019, reversing an increase from the previous year, according to the most recent available data.

“In order to promote the efficiency for overseas investment, CIC persistently refines management and optimizes its operation model,” the fund said in an emailed response to Bloomberg, adding that it is trying to strengthen its institutional capacity.

The revamp followed CIC’s establishment of an investment policy body early last year to “better ensure” asset allocation objectives are implemented across its portfolio, according to its 2019 annual report.

“While this move on its own may seem small, it’s part of much broader changes that have been ongoing at CIC for a number of years,” said Harry Handley, a Shanghai-based analyst at consultancy Z-Ben Advisors Ltd. “This new development should further streamline the investment decision-making and asset allocation process.”

The fund’s long-term goal has been to expand non-public investments including in private equity, real estate and hedge funds for more stable returns. Stocks and bonds were the company’s main investments in the early years after its 2007 inception. Alternative assets accounted for only 6% in 2009.

CIC Capital was set up in 2015 to boost direct investments, while CIC International ran other assets including public stocks and bonds, real estate and private equity. CIC Capital had its own investment committee and hoped to boost its capital to as much as $100 billion through bond sales. The fundraising plans have made little progress.

Separately, CIC Capital’s management department, which includes positions for legal and risk control, is also being dismantled, the people said. The various teams will be folded into other departments, they added.

The unit also saw an exodus, losing four senior managers late last year. Previous departures from CIC Capital include Executive Vice President Zhang Qing, and Winston Ma, former head of CIC’s North America office.

Besides the internal restructuring, changes at CIC in the past few years have also included greater emphasis on the establishment of bilateral co-investment funds such as the fund with Goldman Sachs Group Inc., as well as closer cooperation and knowledge sharing with external partners, which could all help with the target of lifting alternatives, Handley said.

“These changes mean that CIC, both portfolio and internal structure and processes, will look markedly different at the end of 2022 than it did when the target was originally set in 2018,” he said. “And it won’t be far off hitting that goal.”

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