Sovereign wealth fund CIC vows to do better after audit shortcomings

PUBLISHED : Friday, 20 June, 2014, 12:59am
UPDATED : Friday, 20 June, 2014, 1:23am

China Investment Corp, the mainland's US$575 billion sovereign wealth fund, said it is improving how it manages overseas investments after state auditors said mismanagement led to losses.

The fund has drafted plans to rectify issues identified by the National Audit Office, and is amending related mechanisms and procedures, Beijing-based CIC said in a statement. It said it would also strengthen due diligence for overseas deals, enhance post-investment management, and standardise the selection of external managers.

An audit last year found dereliction of duty by managers, and inadequate due diligence and management in 12 investments made abroad by CIC between 2008 and 2013, leading to losses. CIC, set up in 2007 to manage part of the mainland's foreign reserves, is the world's fourth-largest state wealth fund, according to the Las Vegas-based Sovereign Wealth Fund Institute.

CIC's overseas portfolio includes shares in Wall Street firms, such as Morgan Stanley, Canadian energy producer Sunshine Oilsands and polysilicon maker GCL-Poly Energy.

Founding chairman and chief executive Lou Jiwei, replaced last year by Ding Xuedong, is the finance minister.

The fund's financial and information management is weak, accounting policies for overseas investments are "not prudent enough", and it was not strict in enforcing its personnel management and accountability measures, the audit said. Auditors also said CIC's selection of outside managers for some overseas deals was "not very standard".

CIC "has dealt with" employees responsible for issues regarding the overseas investments, the fund said.

The audit office said it transferred cases of suspected legal or disciplinary violations to the authorities for investigation.

The company amended its accounting practices in private equity investments, after auditors found US$10 million in payments from some deals were kept out of its formal accounts for 2012. Auditors found irregularities at CIC's domestic units.

Among them, Central Huijin Investment lost out on 1.26 billion yuan (HK$1.58 billion) in potential investment gains in 2011 by selling a stake in a securities firm at cost, and not conducting an asset appraisal as required.