CIC net profit jumps 60pc on overseas gains

PUBLISHED : Saturday, 27 July, 2013, 12:00am
UPDATED : Saturday, 27 July, 2013, 4:47am

The net profit of China's US$575 billion sovereign wealth fund China Investment Corp (CIC) surged 60 per cent last year, helped by a 10.6 per cent return on its overseas investment portfolio.

Net earnings rose to US$77.4 billion last year, from US$48.4 billion in 2011, as global asset prices increased from the third quarter, in step with a burgeoning economic recovery, Ding Xuedong, CIC's new chairman, said yesterday.

CIC's performance comes as a relief for the fund, which has been criticised for its poor returns on investment since its inception in September 2007. But it also poses a challenge for Ding, who replaced Lou Jiwei this month. The new chairman is under pressured to generate better returns than his predecessor. CIC was created to manage part of the nation's US$3.5 trillion of foreign-currency reserves. It also holds stakes in state-controlled banks.

CIC's return on its overseas investment reached 10.6 per cent last year, compared with a loss of 4.3 percent in 2011. The annualised return on its overseas investment was 5.02 per cent for the five years through to the end of 2012, CIC said in its annual report.

"The return was decent in the latter period of Lou Jiwei's tenure, compared to Temasek, Singapore's sovereign wealth fund," said Ding Zhijie, a finance professor at the University of International Business and Economics. "People should tolerate short-term fluctuations in the fund's performance as CIC is a long-term investor."

People should tolerate short-term fluctuations ... as CIC is a long-term investor
Ding Zhijie, University of International Business

Temasek, with assets of around US$170 billion, said this month that total returns to shareholders, including dividends, increased to 8.9 per cent last year, from 1.5 per cent the year before.

CIC has never faced pressure from the central government to pursue short-term returns as its performance is evaluated only every 10 years, CIC vice-chairman Gao Xiqing told the Post in an interview in March.

Last year, CIC increased investment in equities and "steadily carried out" investment in long-term assets in sectors from infrastructure, energy and mining to real estate, according to the annual report.

China Investment Corporation International, the unit of CIC that manages the fund's overseas investments, has received about US$49 billion of capital from the government since it was set up in 2011, according to the report. CIC invested almost all its initial US$200 billion in capital in 2010.

Its long-term investments last year included ones in EP Energy in the US, Thames Water and Heathrow Airport in the UK, and Moscow Exchange in Russia. At the end of last year, long-term investments accounted for 32.4 per cent of CIC's global investment portfolio. Stocks took a 32 per cent share and fixed-income securities accounted for 19.1 per cent.

In terms of regions, 49.2 per cent of equities in its global portfolio were US stocks, 27.8 per cent of its shares non-US developed countries' stocks and 23 per cent emerging markets' shares.

CIC is more optimistic about the US economy than Europe's or Japan's, Gao said in March.