Is China's CIC Going To Mirror Yale Endowment? New Management May Be The Key

Jan 22 2014, 9:17am CST | by

A changing of the guard at the top of the China Investment Corporation, the $575 billion Chinese sovereign wealth fund, may take it closer to resembling its newfound role model: Yale Endowment.

Today, word reached the Chinese press that Gao Xiqing, the president of CIC and also one of its founders, is to step down into retirement, to be replaced by the chief investment officer he recruited in 2011, Li Keping. This is the second major change at the top of CIC in less than a year, after Ding Xuedong became chairman in July.

At first glance, this might not suggest any major change of direction at CIC. Gao and Li and thought to see investment strategy very similarly. Well before they worked together at CIC, the two were colleagues at the National Council for Social Security Fund (NCSSF), China’s biggest state pension; the Chinese funds management specialist Z-Ben says that while there, the two worked together to improve the fund’s investment returns and expand its overseas allocation.

However, it is notable that a considerable change in CIC’s investment strategy took place not long after Li became CIO.

In its early days, CIC was characterised by some ill-advised investments in western institutions, notably Morgan Stanley, in an attempt to find bargains in the global financial crisis. While CIC did eventually make money on its Morgan Stanley investment, it got considerably worse before it got better, and CIC  - which logged a 2.15% loss in 2008, its first reported year of returns – was burned by the experience. In the following years it showed more of a focus on frontier commodity assets, such as miners in Mongolia, before evolving into a more sophisticated and balanced allocation of assets. In 2011, 25% of its assets were in diversified public equities, 21% fixed income securities, 11% cash, 12% alternative assets (which at CIC mainly means hedge funds), and 31% long-term investments, which includes private equity, energy, mining, real estate and infrastructure. But the fund once again made a loss in 2011, after positive returns in 2009-10.

CIC’s 2012 annual report reveals that the fund reviewed the experience of other institutional investors in the previous five years, and decided that year to move to a new allocation model again, this time based upon what it calls the “endowment model”. This is an inexact term, but typically refers to the approach characterised by endowment funds such as Yale and Harvard, which involves heavy use of alternative assets, and in particular private equity. (I took a closer look at the Yale and Harvard models in this article.) With Li having joined the team in 2011, he appears to have been instrumental in the decision, and should be expected to continue to push it through now he is in charge.

There is already evidence of this. In 2012 CIC increased its focus on infrastructure, agriculture, and other assets that generate steady returns, and it says it developed a new model for investment in private equity. Examples of direct investments in 2012 included Thames Water and Heathrow Airport Holdings in the UK: proven, generating steady returns, developed-world infrastructure. By the end of 2012, the ‘long-term investments’ category was up to 32.4%, and 12.7% in alternatives; over 40% of the funds in non-traditional assets.

In that respect, it already looks a lot like Yale, which had as much as 35.3% in its target allocation to private equity in 2012, before dropping back to a 31% target for fiscal 2014. Li at the helm suggests this will be the pattern for the future. The next question: will it work? And the one thing that’s for sure about private equity investments is it takes a long time to be sure if they’re the right ones.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Oceans were always there on Earth: Scientists
Washington, Oct 31 (IANS) Debunking previous theories that water came late to Earth well after the planet had formed, researchers have significantly moved back the clock for the first evidence of water on Earth and in the inner solar system.
 
 
Wearable health devices key for safe space tourism
New York, Oct 31 (IANS) At a time when several firms are developing spacecrafts to take ordinary citizens on short trips into space, scientists have outlined the risks and challenges involved in human commercial spaceflights.
 
 
Nestle to introduce robots as sales clerks
Tokyo, Oct 31 (IANS/EFE) Nestle will use robots as sales clerks at its outlets selling coffee makers in Japan, an initiative that will later spread worldwide, a Nestle spokesperson confirmed to EFE news agency.
 
 
Healthy diet for infants prevents obesity later
New York, Oct 31 (IANS) If you do not want your baby to grow up into an overweight adult, make sure you feed him or her healthy diet from the very first year, a study suggests.
 
 
 

Latest from the Network

Oceans were always there on Earth: Scientists
Washington, Oct 31 (IANS) Debunking previous theories that water came late to Earth well after the planet had formed, researchers have significantly moved back the clock for the first evidence of water on Earth and in...
Read more on Business Balla
 
Wearable health devices key for safe space tourism
New York, Oct 31 (IANS) At a time when several firms are developing spacecrafts to take ordinary citizens on short trips into space, scientists have outlined the risks and challenges involved in human commercial...
Read more on Business Balla
 
Early Walmart Cyber Monday 2014 Sale and Holiday 2014 Sale announced
Walmart has revealed their first Holiday 2014 sales details. Starting Saturday Walmart will offer over 20,000 rollback deals. New this year are early Walmart Cyber Monday 2014 sales starting midnight on walmart.com.On...
Read more on Black Friday Countdown
 
Nestle to introduce robots as sales clerks
Tokyo, Oct 31 (IANS/EFE) Nestle will use robots as sales clerks at its outlets selling coffee makers in Japan, an initiative that will later spread worldwide, a Nestle spokesperson confirmed to EFE news agency....
Read more on Celebrity Balla
 
Healthy diet for infants prevents obesity later
New York, Oct 31 (IANS) If you do not want your baby to grow up into an overweight adult, make sure you feed him or her healthy diet from the very first year, a study suggests. Babies who eat diets high in sugar, fat...
Read more on Business Balla
 
Popular mosquito catcher in Japan uses human odour as bait
Tokyo, Oct 31 (IANS) A novel mosquito trap that lures its prey using human scent and other smells favoured by the critter is creating a buzz as Japan frets about the spread of dengue fever. The boxlike device is the...
Read more on Business Balla
 
Antarctic ozone hole stands steady: Scientists
Washington, Oct 31 (IANS) The Antarctic ozone hole has reached its annual peak size and holds steady, say scientists, trying to determine if the ozone hole trend over the last decade is a result of temperature...
Read more on Business Balla
 
How genes affect Ebola patients
New York, Oct 31 (IANS) The Ebola virus affects different people differently, say researchers, adding that genetic factors could be behind this mild-to-deadly range of reactions to the virus. While some people...
Read more on Business Balla
 
Pierce Brosnan mortgaged heating to fund big break
Pierce Brosnan funded his big break in acting by taking out a second mortgage on his central heating. The 61-year-old star has revealed his late wife Cassandra Harris - who died from ovarian cancer aged 43 in 1991 -...
Read more on Celebrity Balla
 
Lahiri hoping for memorable debut at WGC-HSBC Champions
Shanghai, Oct 31 (IANS) India's Anirban Lahiri will be hoping for a memorable debut when he takes his place among the game's elite at next week's $8.5 million WGC-HSBC Champions. The final World Golf Championships...
Read more on Sport Balla