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 it global portfolios last year.
The prospect of the $482 billion fund unleashing its war chest on the resources sector is highly appetising for Australian companies looking for fresh sources of capital as traditional providers in Europe and the US are tightening belts.
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BusinessDay understands that 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 market, investing $125 billion worldwide, with suggestions this will increase dramatically in the future, according to the UN's 2012 World Investment Report.
State-owned oil giant CNOOC highlighted its appetite for unconventional oil and gas assets through its $15.1 billion takeover bid for Canada's Nexen this week, and local hopes are that it could seek to increase its Australian exposure beyond a 5 per cent stake in the North-West Shelf.
CIC said in its annual report released yesterday that it has reduced its investments in public equities from about half of its holding at the end of 2010 to a quarter last year.
It said its investment strategy would focus more on long-term assets to shield itself from market turbulence, and it made 10-year annualised returns a key performance measure.
“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,” chairman and chief executive Lou Jiwei said.
“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.”
Huge financial losses and domestic political backlash in China during the global financial crisis prompted CIC to rethink its investment strategy.
CIC opened its first office outside of Asia last year, in Canada, to explore resource-related investment opportunities in North America.
It also launched the Russia-China Investment Fund last year with Vnesheconombank, Russia's state development bank, and the Russia Direct Investment Fund.
CIC was established in 2007 by the Chinese government to diversify its $3.2 trillion foreign exchange reserve away from US Treasury debts and generate higher returns.
It has been under intense domestic and foreign scrutiny since its inception.
Foreign regulators are worried about its government background while the Chinese public has criticised its investments in Morgan Stanley and Blackstone before the global financial crisis.
CIC has been trying to portray itself as a transparent institution that invests for commercial purposes.
It has been publishing 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.
The Chinese sovereign wealth fund has relatively little investment in Australia compared with other resource-rich countries such as Canada, apart from the $500 million resources fund established last year.
There is only one another reported case of CIC investment, in Goodman Group - a property trust.
CIC has made numerous investments this year after it received $US30 billion fresh injection of capital from Beijing at the end of last year.
It took shares in the French utilities giant GDF Suez, UK's Thames Water Utilities, the water network that serves London, and oil sand asset in Canada.