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China’s SWF Finds Partners, Gets Direct

China Investment Corp. is taking a more active role in its foreign investments by forging partnerships with overseas third-party managers.
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(September 19, 2012) – China Investment Corp. (CIC), the nation’s $482.2 billion sovereign wealth fund, is continuing the process shifting away from outsourced management and funds-of-funds investment. 

“We will continue to pursue direct investments under our asset allocation strategy and build positions to capture stable returns in the long term,” CIC states in its most recent annual report. “We will further refine our project management system across the project life cycle, including project identification, decision-making, post-investment management and exit. And we are keen to explore ways to cooperate with our peers globally.” 

A primary way the fund is becoming a more active investor overseas is through co-investing arrangements with private-equity fund managers, according to a Wall Street Journal report. One partnership, with Toronto-based Brookfield Asset Management, will focus on acquiring real assets in the Americas, such as timber, to shield CIC assets from inflations. Brookfield and CIC have an existing relationship: In 2010, the sovereign wealth fund, which is the fifth-largest in the world, contributed about $200 million to a $2.5 billion Brookfield fund specializing in real assets from the Americas. 

The fund opened its first office outside of Asia in Toronto in January 2011, intending it to serve as a “platform for enhancing and broadening communication with stakeholders in Canada and expanding CIC’s business,” according to the 2010 annual report. 

CIC is also making a strong push towards insourcing asset management. As of December 31, 2011, CIC managed 43% of its assets internally, up from 41% at the same point in 2010. It’s following the lead of a number of other giant sovereign wealth funds, including the Alberta Investment Management Corporation (AIMCo). AIMCo has been beefing up its internal asset management staff, and aggressively developing the infrastructure and IT capabilities to run such an operation. 

AIMCo’s CEO Leo de Bever told aiCIO in a 2010 interview that external fees were a major motivation to bring management in-house “I paid [US $160 million] in external fees last year,” he said in a December 2010 interview. “I think we can cut that down by four times if we move some of it internally.”