CIC plans to invest in Western infrastructure projects
China Investment Corp. (CIC) will commit funds to improving infrastructure in developed countries, starting with the UK, where it plans to team up with fund managers or participate through public-private partnerships.
"We at CIC believe that such an investment, guided by commercial principles, offers the chance of a ‘win-win' solution for all," Jiwei Lou, chairman of the sovereign wealth fund, wrote in an opinion piece published in The Financial Times. Lou recently returned from a visit to the UK during which Chinese officials showed particular interest in the proposed high-speed rail link between London and the north of England.
Lou suggested that China is ready to change its approach to overseas infrastructure projects. Having formerly sought to participate as a contractor, now Chinese investors want to own and operate infrastructure in the West as well as help build it.
The British government is ready to turn to UK pension funds and sovereign wealth funds in the Middle East and Asia to support GBP30 billion ($46.5 billion) in spending on road, rail, port and social housing projects. The initiative is a key part of plans to stimulate the country's flagging economy.
For CIC, which has $410 billion under management drawn from China's $3.2 trillion in foreign exchange reserves, infrastructure investment represents an opportunity to diversify its holdings into real assets. The bulk of these foreign exchange reserves are held in sovereign debt, particularly US Treasury bonds, and CIC was set up in 2007 with a view to making riskier investments and earning higher returns.
The sovereign wealth fund's initial investments were in financial services and it carries substantial paper losses on commitments of $3 billion and $5 billion made to The Blackstone Group and Morgan Stanley, respectively, in 2007. More recently it has shifted its attention to hard assets that are perceived to retain more value. The fund's 2010 report shows that exposure to alternative investments - such as private equity, hedge funds, real estate and infrastructure - increased sharply to 21% from 6% in 2009.
CIC took a 19.9% stake in Goodman Group in 2009, having committed A$500 million ($460 million) to an A$1.8 billion bailout package for the troubled Australian industrial property trust. Working with it Qatar Investment Authority, it also took over Songbird Estate, the majority owner of London's iconic Canary Wharf, after paying off GBP880 million in loans. Most recently, CIC agreed to take a stake in Royal Bank of Scotland's $1.4 billion commercial real estate portfolio alongside Blackstone.
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