China Investment Corporation, the country’s sovereign wealth fund, announced on Friday its 10-year cumulative annualized net return was 6.07 percent, 45 basis points higher than its 10-year performance target.
The company recorded a net return of negative 2.35 percent on overseas investments in 2018 as declining major stock markets took a toll on its overseas investments. But the net return still exceeded the annual performance bench mark by 371 basis points and outperformed the market.
“The year 2018 was highly challenging for international institutional investors, including the CIC,” said Peng Chun, chairman of the CIC, at a news conference in Beijing on Friday.
“The global economic and financial situation became increasingly severe, and international capital markets went through ups and downs. Global equities, as represented by the MSCI All Country World Index, declined by 9.4 percent in US currency for the year. As the environment for overseas investment became harsher and regulatory policies tightened gradually, the competition for high-quality assets has intensified among investors.”
With the slowdown in growth for major economies and the rise of protectionism and unilateralism, the environment for outbound investments will become more difficult for sovereign wealth funds like the CIC, whose overseas investments will also face greater legal, compliance and safety risks due to increasing political interference and tighter restrictions, Peng said.
The company is observing and studying the evolvement of China-US trade frictions and China’s monetary policy responses.
“We will optimize our investment strategies, asset allocation structure and risk policies according to the changes in the situation in a timely manner,” he said.
Last year, the CIC effectively responded to market changes and progressively reduced portfolio risk and leverage, apart from further optimizing allocation efficiency for long-term assets.
The weight of alternative investments, including direct investments, in the company’s overseas investment portfolio reached 44.1 percent, up 4.8 percentage points from the previous year.
Ju Weimin, vice-chairman and president of the CIC, said the company will continue along this path and dig further into new investment opportunities brought by the Belt and Road Initiative, exploring third-party market cooperation under the framework of BRI.
Such cooperation can align China’s advantageous production capacity and developed countries’ advanced technology with developing countries’ needs.
Moreover, the company will emphasize discovering Chinese-themed investment opportunities, especially projects in the manufacturing, healthcare, technology, media and telecom sectors. It will also continue to explore the establishment of bilateral and multilateral funds, Ju said.
In November 2017, the CIC and Goldman Sachs launched a private equity fund called the China-US Industrial Cooperation Partnership LP, which was designed to expand business ties between US and Chinese manufacturers. They have so far completed the first three rounds of fundraising of nearly $3 billion for the fund.
Looking forward, Peng said the heaviest task for the CIC’s domestic investment arm, Central Huijin Investment Ltd, is to fight a tough battle against financial risks, considering that the external economic situation is grim.
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“We will maintain sharp vigilance and promote the 17 companies in which Central Huijin holds shares to hold fast to the bottom line of preventing major financial risks,” he said.
Central Huijin is participating in the restructuring of the troubled Hengfeng Bank Co Ltd as a strategic investor.
It will continue to take part in financial institutions’ disposal of risks through marketized solutions, according to the deployment of regulatory authorities, he said.
In 2018, net profits of the 17 companies in which Central Huijin holds shares increased by 3.1 percent year-on-year.
Their total gross assets reached 123 trillion yuan ($17.35 trillion), up 6 percent year-on-year.