China's CIC sees 9.3% gain on overseas investments in 2013

Ding Xuedong - who succeeded Lou Jiwei as chairman of CIC last year, while Li Keping took over from Gao Xiqing as vice chairman and president earlier this year - contrasted "the smooth succession of a new leadership" with the economic volatility created by "multi-speed recoveries" across the globe.

"As uncertainties remain in the course of the global economic recovery, deal sourcing becomes more difficult," Ding added in his opening message to CIC's 2013 annual report. "The rise of investment protectionism and the complexity of global supervision will pose new challenges. And all international institutional investors face considerable pressure in investment activities and profit generation."

The 9.3% return on overseas investments compares to a 10.6% gain in 2012. The net cumulative return on the portfolio since inception was 5.7%. CIC's total assets stood at $652.7 billion at the end of the year, up from $575.5 billion in 2012. Investment income rose from $83.5 million in 2012 to $92.5 million in 2013, largely driven by gains on long-term equity investments.

Of CIC's global investment portfolio, 40.4% was in public equities as of December 2013, with 17% in fixed income, 11.8% in absolute returns, 28.2% in long-term investments and 2.6% in cash. Last year, long-term investments represented the largest portion of the portfolio on 32.4%, ahead of public equities on 32% and fixed income on 19.1%.

Long-term investments fall under two internal groups: the department of private equity, which is responsible for private equity and real estate investments - through funds, direct investments and co-investments - as well as credit opportunities; and the department of special investments, which covers areas including energy, mining, infrastructure and agriculture.

The sovereign wealth fund relies on external managers for 67.2% of its portfolio - roughly the same as last year - while financial services represents CIC's the largest single sector, accounting for 22.9% of assets. Consumer discretionary has overtaken information technology to claim second place on 12.5%.

Unlike previous years, CIC did not offer details of selected direct investments, although it did outline enhancements made to internal operations and management. Earlier this year, the sovereign wealth fund promised to improve management of its overseas investments after China's National Audit Office (NAO) said mismanagement had led to losses.

CIC was set up in 2007 with RMB1.55 trillion in special bonds issued by the Ministry of Finance, which were used to acquire approximately $200 billion of China's foreign exchange reserves. It has two wholly-owned subsidiaries: Central Huijin holds controlling stakes in key state-owned financial institutions, while CIC International focuses on overseas assets. The latter subsequently received an additional $49 billion.

Ding wrote earlier this year that CIC is interested in partnering with governments, multilateral organizations and like-minded institutions to invest in agriculture assets. He said that the private sector and institutional investors have a significant role to play in providing an ample supply of food at affordable prices to a growing and increasingly prosperous global population. Agriculture is also an inflation hedge for long-term investors.

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