CIC tipped to balloon to US$625b

PUBLISHED : Tuesday, 15 April, 2008, 12:00am
UPDATED : Tuesday, 15 April, 2008, 12:00am

The mainland's US$200 billion sovereign wealth fund is projected to swell to US$625 billion within three years, with US$344 billion to be ploughed into foreign securities, according to a new report.

That would likely rank China Investment Corp, which was established last year to boost returns on the country's vast foreign exchange reserve, as the world's second-largest sovereign fund after the Abu Dhabi Investment Authority.

The huge injection of capital from the mainland's vast foreign exchange reserve - worth US$1.68 trillion at the end of March - will be a boon to foreign asset managers mandated to invest more than 70 per cent of the new funds, fund industry consultancy Z-Ben Advisors predicted in the report.

'China not only needs to diversify its foreign exchange reserves and fund its future pension liabilities through investment; it needs to accomplish these tasks at some speed,' said Peter Alexander, principal of the Shanghai-based consultancy.

'Investing directly in global companies is only a small part of their overall strategy: the largest proportion of their funds will be invested with professional asset managers.'

The National Council for Social Security Fund can expect its assets to rise from US$71 billion now to US$104 billion by the end of 2010, said the report 'Chinese Sovereign Wealth Funds: 2008-2010 Opportunities for Foreign Asset Managers'.

By then, the mainland's three sovereign wealth funds - CIC, the NCSSF and the China-Africa Development Fund - will likely be the world's third-largest employers of external asset managers.

'The size of the foreign exchange reserves is mind-boggling. Something needs to be done to push up returns, especially with the faster appreciation of the yuan,' said Mr Alexander, adding that CIC would mainly target small, passive investments.

He said the winners were likely to be specialist asset management firms like Fidelity and Vanguard, with JF Asset Management's expertise in Hong Kong and emerging markets also putting it in a strong position.

The survey's findings were based on analysis of the country's sovereign wealth funds and on conversations with asset managers, rather than information provided by the funds themselves.

'I think it is too early to say how much extra cash CIC will get. I also doubt they will hand over 70 per cent of their funds to foreign managers because in the long-term CIC wants to manage the funds itself,' said Qu Hongbin, chief China economist at HSBC.