China sovereign fund in Australian resources drive
CHINA Investment Corporation, one of the largest sovereign wealth funds in the world, is poised to plough more money into energy, resources and infrastructure assets as it reduces its exposure to the volatile sharemarket after posting a 4.3 per cent loss on its global portfolio last year.
The prospect of the $482 billion fund unleashing its war chest on the resource sector will provide hope for many Australian companies starved of capital as funding sources in Europe and the US dry up.
BusinessDay believes CIC established a $500 million resources fund in Australia last year and this investment is being co-managed by an Australian fund and the local arm of a global investment bank.
Sovereign wealth funds are increasingly important players in international investment markets, investing $125 billion worldwide last year - a figure tipped to increase dramatically, according to the latest United Nations report on world investment.
State-owned oil company CNOOC highlighted its appetite for oil and gas assets through its $15.1 billion takeover bid for Canada's Nexen this week, and local hopes are that it will seek to increase its Australian exposure beyond its stake in the North-West Shelf oil and gas project.
The Chinese government established CIC in 2007 to diversify its $3.2 trillion foreign exchange reserve away from US Treasury debts and to generate higher returns.
It has been under intense scrutiny since its inception. Huge foreign losses and a domestic political backlash in China during the global financial crisis prompted CIC to rethink its investment strategy.
It said in its annual report released yesterday it had reduced its investments in public equities from about half its holdings at the end of 2010 to a quarter last year.
It said it would make 10-year annualised returns a key performance measure as it shifted its investment strategy to focus more on long-term assets to shield itself from market turbulence.
''CIC's board of directors decided to extend our investment horizon to 10 years to better reflect our investment approach as a long-term investor,'' said chairman and chief executive Lou Jiwei.
''We gradually built up positions in non-public assets, particularly direct investments and private equity investments in such industries as energy, resources, real estate and infrastructure.''
CIC received a fresh $US30 billion cash injection from Beijing at the end of last year, and has snapped up stakes in French utilities company GDF Suez, Britain's Thames Water Utilities and oil sand assets in Canada.
Foreign regulators are worried about its historical government links, but CIC has been at pains to portray itself as a transparent institution that invests for commercial purposes.
It has published annual reports since 2008 as part of its commitment to the Santiago Principles - a set of non-binding rules that promote transparency among sovereign wealth funds.