CIC Notes 'Fairly Good' Returns Last Year; Seeks More Capital

The China Investment Corp. has worked with $200 billion from the central government, which granted the money when the sovereign wealth fund was created in 2007; the second round of investment has been on the radar for more than a year.

(January 18, 2011) — In a rare public statement, the China Investment Corp (CIC), the nation’s $300 billion sovereign wealth fund, posted “fairly good” returns in 2010 and has requested more capital after deploying all its current funds.

According to Bloomberg, the sovereign wealth fund, which posted an 11.7% return on its overseas portfolio in 2009 after raising bets on commodities, will seek additional money from the government with hopes that the CIC will increase investments. “We hope to get more funding,” Executive Vice President Jesse Wang told a forum in Beijing, as reported by the news service, adding that the fund is now waiting for the government’s decision to provide more funding. The CIC received a $200 billion injection with central government funds in 2007 and it has awaited a second $200 billion injection for more than a year. With its strong investment record, the CIC has argued it deserves additional funds. At the end of 2009, the CIC reported total assets of $332 billion, realizing a 12.9% return that year compared with a 6.8% return in 2008.

Wang told Bloomberg that China should consider investing its foreign-exchange reserves in energy, resources, high technology and agriculture. Regarding the nation’s plan to diversify its investment portfolio that includes $906.8 billion in US Treasuries, Wang defended the logic behind dollar-denominated investments. “Actually, it is unnecessary to complain too much about risks in the dollar and US Treasurys,” Wang said, according to the Wall Street Journal. “Moving the investment into other sectors doesn’t necessarily reduce risks,” he Wang said, noting the high liquidity of US Treasurys.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

In 2011, Canadian Managers See Improved Funded Positions

In consultant firm Mercer's latest Fearless Forecast survey, investment managers have predicted that Canadian pensions will experience reduced shortfalls, with funds seeing their funded status moving closer to the levels they hit before the market downturn in 2008.

(January 17, 2011) — A survey by pension consultant firm Mercer has shown that Canadian pensions could see their funded status improve in 2011.

“If manager forecast of expected increase in interest rates and solid equity returns in 2011 occurs, plan sponsors should see improvement in their funded positions,” said Mark Fieldhouse, principal in Mercer’s investment consulting business in Canada, in a statement. The survey reflects the strength of the Canadian economy in 2010. “Canada was one of the first G7 nations to climb out of the recession,” said Fieldhouse at The Toronto Board of Trade, CTV News reported. Managers expect global growth to continue in 2011, albeit at a a slower pace, driven largely by emerging economies.

The Fearless Forecast survey of investment fund managers found that Canadian funds will experience reduced shortfalls and a funded status more closely resembling levels prior to 2008’s market downturn. With pension funds’ costs measured using long bond yields, the study predicted a 0.35% increase in long bond yields in 2011, which would result in a 5% decrease in the liability facing funds to provide benefits to members. Furthermore, the study estimated that Canadian equity markets will climb by 8.5% while US markets will grow by 9% and foreign markets will return approximately 7.5% in 2011. The consultant firm concluded that emerging market equity returns are expected to exceed each developed market in 2011, with a median expected return of 10%.

Mercer found that investment returns on pension funds’ asset portfolios will drive an improvement in the funded status of pension plans by about 2% in 2011.

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Conducted in December 2010, the study is Mercer’s 20th annual Fearless Forecast, consisting of views of the Canadian and global markets from 56 leading Canadian and global institutional investment managers. Together, these firms manage more than $8.7 trillion (C$8.6 trillion) for Canadian pension funds and other investors globally.

Separately, according to a recent Aon Hewitt analysis, global corporate plans have averaged a funded status of 87% in 2010, only one percentage point higher than at the start of the year. The firm noted that that slight increase in funding came from equity market gains and bond price appreciations that were fueled by falling interest rates. Aon Hewitt’s findings compare with a December survey by Mercer, which concluded that pension plans sponsored were on average 81% funded at year-end 2010, down from an average funded ratio of 84% a year earlier.

“As we look to 2011 and beyond, organizations will increasingly strive for balance between funding and investment strategies in dealing with pension deficits,” Ari Jacobs, Aon Hewitt’s retirement solutions leader, said in a release. “Many employers will consider risk management programs that combine derisking plan investments with strategic funding.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742