CIC Says 'Goodbye Stocks'

In an effort to shield itself from short-term market movements, the China Investment Corporation is increasingly shifting away from stocks, according to the sovereign wealth fund's recently released 2011 annual report.

(July 26, 2012) — Suffering its most dismal year of investment returns, China’s $482 billion sovereign wealth fund is fleeing stocks while seeking long-term assets, such as direct investments in nonpublic companies and private equity, according to its 2011 annual report.

The report, released Wednesday, reveals that public equities made up 25% of the CIC’s global portfolio at the end of last year, down from 48% at the end of 2010. Meanwhile, long-term assets accounted for roughly 43% of its portfolio. Furthermore, the report noted that it made an increasing number of direct investments in “lower-risk assets,” such as oil and gas, mining, and infrastructure.

The CIC’s report comes as the fund posted a 4.3% loss on its global portfolio last year — the most dismal annual result since the sovereign wealth fund’s inception in 2007. By comparison, in 2010, CIC had an annual return of 11.7%. The cumulative annualized return for the fund since it was established stands at 3.8%.

The loss in investments, according to the sovereign fund, is largely attributable to the fluctuating value of financial and energy sectors, the two largest components in the portfolio. While financial assets accounted for 19% of investments, energy accounted for 14%.

Citing difficulties of the global economy and the CIC’s need to maintain a long-term outlook, the fund’s Chairman and Chief Executive Officer Lou Jiwei said: “Institutional investors are commonly evaluated on their investment returns over the long term in relation to benchmarks or stated investment objectives, rather than on short-term returns or individual portfolio performance. In January 2011, 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.”

In addition, the CIC revealed in its annual report that 21% of its overseas holdings were in fixed-income securities, with 11% in cash.