CIC doubles alternatives exposure, posts loss for 2011

"Looking ahead, the global economy will continue to recover but the process will be fragile," Jiwei Lou, chairman and CEO of CIC, said in his foreword to the fund's annual report, released on Wednesday. "With fresh volatility in the financial markets still posing serious risks, CIC will adhere to prudent investment approaches."

Lou described the increased exposure to non-public market assets - direct and private equity investments in areas such as energy, resources, real estate and infrastructure - as an example of how CIC's asset allocation and risk management has evolved to protect against market shocks. It is also a function of a decision taken early in 2011 to extent the fund's investment horizon to 10 years in order to better reflect its long-term approach.

CIC had $482.2 billion in assets under management at the end of 2011, up from $409.2 billion the previous year. This includes substantial stakes in major state-run banks, held through Central Huijin. In December 2011, the Chinese government injected $30 billion into CIC and it was reported in April of this year that a further $50 billion has been pledged to the fund.

CIC was set up in 2007 with RMB1.55 trillion ($246 billion) in special bonds issued by the Ministry of Finance, which were used to acquire approximately $200 billion of China's foreign exchange reserves.

Within the fund's global investment portfolio, long-term holdings (understood to include direct and private equity investments) accounted for 31%, with absolute returns investments (predominantly hedge funds) on 12%. In 2010, CIC's exposure to alternative investments - i.e. long-term holdings plus absolute returns - was 21% of its overall portfolio. In 2009, it was 6%.

This switch to a longer-term investment horizon is also reflected in CIC's other holdings. Public equities exposure fell to 25% from 48% in 2010. Cash holdings increased to 11% from 4% and, although the fixed income portion of the portfolio fell to 21% from 27%, government and government agency bonds accounted for 69% of these assets, compared to 47% a year earlier.

Direct investments highlighted in the report include Canada's Sunshine Oilsands, Thames Water Utilities in the UK, France's GDF Suez, Polyus Gold, AES-VCM Mong Duong Power in Vietnam, Australia's Horizon Roads, South Africa's Shanduka Group, BTG Pactual in Brazil, Atlantic LNG in Trinidad and Tobago and Diamond S Shipping.

With this broad overseas exposure in mind, in the last year CIC has set up a representative office in Canada and put its Hong Kong subsidiary into full operation with the appointment of several senior managers. Of CIC's 405 staff, 165 have overseas work experience and 44 are overseas citizens. However, the fund has struggled with several key departures in recent months.

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