China's CIC ups alternatives exposure, posts positive return

The sovereign wealth fund previously separated out long-term investments such as private equity, infrastructure and real estate – which came to 22.16% in 2015, down from 26.2% the year before – from its hedge fund exposure (12.67% in 2015). Now, these investments are bundled together under alternatives. The allocation increased in this area at the expense of public equities and fixed income, which both fell slightly to 45.87% and 14.44% of total assets.

CIC’s entire portfolio – which includes sizeable stakes in a number of domestic financial institutions, as well as overseas assets – was worth $813.5 billion as of December 2016, down by a small amount on the previous year. Total investment income came to $83 billion, up from $76.7 billion in 2015.

CIC said it signed or approved 48 contracts for investment in private equity, real estate and private credit over the course of the year, while partially or fully exiting several direct investments. The sovereign wealth fund described its private equity program, which launched in 2008, as having reached “a relatively mature stage,” with a market value of more than $20 billion and cumulative returns exceeding $10 billion.

CIC currently has around 80 GP relationships and has engaged in more than 30 co-investments, including co-sponsorship deals. While there is an expectation that private equity exposure – and co-investments in particular – will increase over time, CIC described the market as “marked by rising valuations and fierce competition.” It plans to respond by optimizing its portfolio structure and deepening collaboration with capable fund managers.

CIC has three major subsidiaries: Central Huijin is responsible for domestic investments; CIC International holds the broad overseas asset management remit, which includes alternatives fund commitments and co-investments; and CIC Capital, which was established in 2015, covers direct investments.

The latter division committed approximately $5 billion across 16 projects in 2016, with a particular focus on increasing exposure to high-quality core infrastructure. This included teaming up with Australia’s Future Fund, QIC, Global Infrastructure Partners, and Ontario Municipal Employees Retirement Scheme to acquire a 50-year lease on Port of Melbourne for A$9.7 billion ($7.4 billion).

Guangshao Tu, vice chairman and president of CIC, noted that the positive return in 2016 had come despite complexities and uncertainties in the global economy, compounded by sluggish economic recoveries and volatile financial markets. He expressed particular concerns about high debt levels, low productivity, and aging populations in developed markets, and capital outflows, trade protectionism, and reduced investment, leading to weak growth, in emerging economies.

“The global political landscapes and prospects for further economic recovery suffered from a widening income gap, the return of conservatism, rising geopolitical risks, and bleak prospects for further recovery,” Tu said in CIC’s annual report.

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• Topics
• Greater China
• LPs
• Performance
• China
• CIC
• Sovereign wealth fund