With 11.7% 2010 Return, China's CIC Is Cautiously Optimistic

(August 4, 2011) — Last year, China’s roughly $200 billion sovereign wealth fund increased its allocation to equities and alternatives while lowering its allocation to cash, the China Investment Corp.’s (CIC) recently released 2010 annual report shows.

“The international investment environment is getting more complicated, and there’s great uncertainties towards sustained global recovery and growth,” CIC Chairman Lou Jiwei said in the fund’s 2010 annual report, referencing factors such as the eurozone crisis and soaring commodities prices. According to the CIC’s report, the fund decreased investment proportions in North America and Latin America in 2010 while upping its exposure to the Asia-Pacific region, Europe and Africa.

Additionally, the CIC’s global investment portfolio yielded a 11.7% return rate in 2010, about in line with gains achieved the previous year when returns were driven largely by heightened bets on commodities.

In terms of asset allocation, the CIC funneled money into private equity, infrastructure projects, direct investment and real estate. Meanwhile, alternative investments increased to 21% of the global portfolio from 6% in 2009.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

In June, the fund revealed that it is targeting mining, real estate, and infrastructure investments in the Americas. Earlier, in April, the CIC said it is targeting emerging economies to expand its overseas investment in developing economies. Jiwei told the China Daily that the company’s board of directors plans to raise more funds to pursue expansion overseas, with a particular focus on investment in developing markets. “CIC needs to diversify asset allocation, and employ different methods to invest in different areas, in order to reduce potential risks and achieve maximum returns,” Lou told the publication.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(August 4, 2011) — New figures from Mercer show that the aggregate deficit of S&P 1500 pension plans increased by $74 billion in July.

“I think the market’s concern around the US debt ceiling debate really showed up in this month’s numbers,” Jonathan Barry, a partner in Mercer’s Retirement Risk and Finance group, said in a statement. “The S&P 1500 declined by roughly 4% in the last week of the month, and high quality bond yields declined, as investors looked for safer investments due to the uncertainty. We saw pretty steady improvement in funded status through the first few months of 2011, but we have seen more volatility the past three months, which has wiped out much of the improvement we saw in funded status year to date.”

He added: “We continue to recommend that plan sponsors, especially those with closed or frozen plans look into frequent funded status monitoring, in order to capitalize on funded status improvements, and move to lower risk positions.”

According to the consulting firm, the drop in funded status was fueled by a 2% decline in equities. Mercer’s analysis indicated the S&P 1500 funded status peaked at 88% at the end of April, and has since seen a 5% decline.

For more stories like this, sign up for the CIO Alert newsletter. 

The debt ceiling debate has been a topic of growing concern in recent weeks. Earlier this week, Pacific Investment Management Co.’s (PIMCO) Mohammed El-Erian said that while a potential debt ceiling deal in Washington may forestall a default and a credit downgrade, it won’t fix the root of the problem draining the US economy.

“The key issue…is that we simply cannot generate enough growth to get us over all these issues,” El-Erian, PIMCO’s co-CEO, said in an interview with CNBC. “Therefore, we have these structural headwinds that continue to slow us down. Until we see structural solutions we’re going to be stuck on the bumpy road to a new normal.”

El-Erian asserted that in the near-term, the deal could avert a debt downgrade threatened by ratings agencies, such as Moody’s and Standard & Poor’s. Earlier this month, Moody’s cautioned that it would slash the US’ AAA credit rating if the government misses debt payments. It noted that because lawmakers have acted to increase the debt ceiling, it had not previously considered the situation high-risk.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742