China's CIC prioritizes direct investment, bilateral funds

The Chinese sovereign wealth fund has launched a string of vehicles in the past 24 months, typically working with an international financial partner to target China-related deals in specific geographies. Within the last six months, CIC has announced an innovation fund with the Russian Direct Investment Fund (RDIF) and a European tie-up with Eurazeo and BNP Paribas.

CIC increased its alternatives allocation – which includes private equity, real estate, infrastructure, resources and hedge funds – from 39.3% to 44.1% over the course of 2018. This came at the expense of public equities, which fell from 43.6% to 38.3%. The cash allocation also doubled to 2.4%.

These steps were taken to counteract the impact of what Chun Peng, the sovereign wealth fund's CEO, described as "wild swings of the global capital market and increased volatility of risk assets," which have led to major stock markets posting their worst performance in 10 years. CIC's international portfolio felt the brunt of this volatility, posting a loss of 2.35% for the 12 months ended December 2018. Last year, the portfolio generated a record return of 17.59%.

Overall assets stood at $940.6 billion, down from $941.4 billion in 2017. CIC also oversees a portfolio of domestic investments under Central Huijin, which holds stakes in 17 financial institutions, including banks, securities companies, insurance companies, and development and policy financial institutions. Capital under management was RMB4.3 trillion ($604 billion) as of year-end 2018.

The international portfolio is managed by two entities: CIC International, which has a broad asset management remit, including alternatives fund commitments and co-investments; and CIC Capital, which makes direct investments as well as managing bilateral, multilateral and platform funds. CIC International approved 57 private equity, private credit and real estate investments in 2018, while CIC Capital committed about $4.9 billion across 24 overseas deals.

The bilateral fund initiative with RDIF represents the continuation of a relationship that began in 2012 with the establishment of the Russia-China Investment Fund (RCIF). The new vehicle is intended to deploy $1 billion into technology-related ventures. Last year, CIC also re-upped for a second cross-border technology fund with the Ireland Strategic Investment Fund. It will be co-managed by Dublin-based Atlantic Bridge and Beijing-based WestSummit Capital. The latter has strong ties to CIC.

Meanwhile, the China-Europe fund established with Eurazeo and BNP has a target corpus of EUR1-1.5 billion ($1.1-1.7 billion) and will be managed by a team from Eurazeo. It follows the launch of a $5 billion China-US vehicle with Goldman Sachs. CIC has also agreed to form a China-Japan fund with several Japanese financial institutions and it has an interest in the Silk Road Fund, which is part of the government's One Belt One Road agenda.

Offering further insight into its approach to private markets, CIC said in its annual report that steps are being taken to consolidate private equity investments and increase exposure to assets with stable returns, in addition to stepping up co-investment activity. The sovereign wealth fund also made clear its commitment to pursuing direct investment, noting that it had made improvements to monitoring and reporting systems, and enhanced interaction between private equity and direct investment teams.

"By the end of 2018, the company's alternative assets and direct investments accounted for more than 40% of its total overseas portfolio. An investment model focusing mainly on equity and illiquid assets is gradually taking shape," Peng added. By 2022, CIC wants to boost non-public market investments - chiefly alternative assets and direct investments - to 50% of its portfolio.

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• Topics
• Greater China
• LPs
• Performance
• China
• CIC
• Co-investment
• Direct investment