Asia’s largest SWF is tooling up and taking its place among the world’s most sophisticated investors.
(July 26, 2013) -- The outgoing chairman of China's largest sovereign wealth fund has written of experiencing a range of emotions at the helm of the institution in its latest annual report.
Lou Jiwei said he was privileged to serve as the founding Chairman of the China Investment Corporation (CIC) alongside its "dedicated staff".
"My 2,000 days at CIC took me through a wide spectrum of feelings-the joy of achievement, the distress of setbacks and the pride of seeing the company grow, thrive and aspire to greater success," Lou wrote in the report released today. "I will hold these memories dear to my heart. For a young company like CIC, it is a pioneering effort to build a diversified investment platform and a global multi‑asset portfolio."
Lou said the CIC had studied the strategies of many large global investors before settling on the endowment model and built its resources since 2007.
He said the fund had made sure its risk capability was robust as "an institutional investor's duty is not to avoid risks outright but to effectively control and manage risks in order to seek risk premium".
He added that the fund's history had not all been plain sailing: "As China's young sovereign wealth fund, we set sail in turbulent times and navigated uncharted waters with courage and competence. Like a ship emerging from a storm, we will usher in a bright future with renewed confidence."
Under his stewardship, last year the fund began a process of putting together its strategy. The report said: "CIC now has a three-layer asset allocation framework comprising strategic asset allocation, policy portfolio and tactical asset allocation… Guided by an asset allocation plan and risk management principles, CIC invests in a wide range of financial products globally, including cash, equities, fixed income, absolute return, and long-term investments. Absolute return investments are primarily hedge funds. Long-term investments include private equity investments, energy, mining, real estate, infrastructure, and others."
The report outlined its largest direct investments made in 2012, including taking stakes in Heathrow Airport, the Moscow Exchange, and other large companies.
The CIC has also enhanced its "internal operation support and management capacity with well-defined responsibilities, effective communications, strict controls and compatible incentives."
This entailed a six-item agenda, ranging from consolidating research and investment teams to enhancing allocations and investment competence to launching analytical systems to improve monitoring and oversight. Improved post-trade reporting, budget management, and treasury controls to investment agreements and other legal and compliance document templates.
Some 36.2% of the CIC's assets was managed internally by the end of 2012, and its international portfolio had made a 10.6% return.
The total CIC staff number by June this year had reached 583, including global investment staff of 443.
The CIC's assets hit $575.1 billion at the end of December, up from $482.1 billion a year earlier. The fund's investment income for the year totalled $83 billion.
Related content: Lou Jiwei in aiCIO's Power 100