The China Investment Corporation could soon overtake GPFG as the world’s biggest sovereign wealth fund after a roaring performance in international and domestic returns that beat the gloom of the pandemic. Global SWF estimates AUM is now over US$1.2 trillion, putting it neck and neck with Norway’s US$1.3 trillion fund.
CIC’s overseas investments posted a return of over 12% in US dollar terms at end-2020, leading to a cumulative annualized return of 6.6% over the past 10 years – beating the performance target by 1 percentage point. Meanwhile, its domestic investor arm Central Huijin reports an equity value of US$801 billion – an increase of 7.7%; its net profit grew 3.2% to US$185 million. CIC states that it has generated a total of US$1 trillion in earnings over its life-time, equating to 7.7 times the capital the government invested.
The fund has been relatively quiet in recent years amid changes at the top and the challenge of US trade restrictions under the Trump administration. But the Chinese behemoth is coming back with a roar, on top of its successful response to the global crisis.
Zhao Haiying, CIC’s Chief Strategy Officer, told a press conference today the fund turned crises into opportunities and actively seized opportunities for market price misalignment. She added: “We conscientiously overcome the challenges posed by the epidemic, seize the favorable window of fundraising demand, and actively expand the coverage and investment amount of outstanding GPs. At the same time, we continue to expand the cooperation methods with outstanding GPs, dig deep for co-investment and co-investment opportunities, and promote new models.”
She attributed the fund’s success to three factors. Firstly, it ensured sufficient liquidity in the investment portfolio to snap up opportunities arising from the crisis in private markets, particularly tech in Asian markets. Secondly, it has developed tools for hedging against short, medium and long-term risks. Lastly, it has sought to continuously improve the management mechanism.
Zhou outlined three key structural challenges. Firstly, low returns and high volatility, with an international capital market that lacks stable foundations and where asset prices are out of kilter with the real economy. Secondly, the intensification of regional and sectoral differentiation with globalization set to give way towards more regional co-operation and integration while technological change is creating new business models that promise to revitalize traditional industries. Lastly, Chinese companies face greater risks and challenges in overseas operations and investments due to tightening containment policies and the expansion of sanctions.
CIC will be banking on new technologies and new industries spurred on by innovation, 5G and the digital economy, which have been given rocket boosters by the pandemic. It has pledged to strengthen asset allocation and research, improve the efficiency of public market investment management, and boost private market investment, including private equity and real assets.
Zhou also pointed to the “positive correlation between ESG indicators and performance”, noting that “more and more investors have realized that incorporating ESG indicators into investment decisions can achieve higher yields.” With China pushing towards carbon neutrality in line with the Paris Agreement on Climate Change, we can expect to see CIC’s investments increasingly oriented towards environmental sustainability.
More crucially, following the election of Joe Biden and the promise of a thawing in Beijing-Washington relations, CIC has renewed its push for long-term investment opportunities in the US. The China-U.S. Industrial Cooperation Fund, co-established with Goldman Sachs in November 2017, has completed two investments in the US, but has raised just half its US$5 billion target due to a change in strategy, according to Reuters’ sources.
CIC has been co-investing with private-equity fund managers such as France’s Eurazeo SE and Japan’s Nomura Holdings and secured investments via its UK-China Cooperation Fund, Japan-China Capital Partners and two other cooperation funds with Italy and France.