12
Citi Transaction Services | Citi OpenInvestor
China Investment Corporation
China Investment Corporation (CIC) is
a major global sovereign wealth fund,
charged with aggressively allocating
a portion of China’s sterilized foreign
currency reserves. With the bulk of
these reserves currently invested in
U.S. Treasuries, low rates of return
mean that Beijing could actually be
seeing depreciation on its foreign
asset holdings, particularly when
exchange rate fuctuations are taken
into account. Established in 2007,
CIC was meant to be a partial answer
to the problem as well as a means
for the foreign reserve authority
to gain exposure to a much wider
variety of assets. After all, when an
investor is 80% or more beholden to
a single geography (U.S. government
bonds, in this case) the underlying
need for diversifcation is crucial.
CIC has therefore been extremely
aggressive in deploying its assets,
which currently total an estimated
USD410bn.
There are few investors that can
afford as long a time horizon as CIC,
and the fund has used this fact to
its advantage time and time again,
by making major allocations toward
long-term, direct equity investments.
Many of these are handled internally
but the fund has also proven to
be one of the most important
sources of institutional mandates
for the foreign asset management
community. At frst, mandates
appeared to encompass a wide variety
of allocations but since 2008 CIC
has tried to develop as much of its
internal capabilities as possible and
a considerable amount of decision
making has been brought in-house.
The remaining alternative allocations
and specialist strategies still, however,
need to be outsourced.
China’s Institutional Investors
In the near term, China’s major institutional players are even more promising than the retail
market. Many large organizations fnd themselves with signifcant amounts of capital to work
with, domestically and, increasingly, overseas. Many of these institutions either have foreign
currency or face an increased need to add meaningful diversifcation to their portfolios, two
factors that provide considerable impetus to the push into foreign markets.