In October, Sovereign Funds Pursue Internal Stability and External Profit

(October 15, 2009) – Recent activity by the China Investment Corporation (CIC)  and Qatar Investment Authority (QIA) is highlighting sovereign wealth fund’s (SWF) role as both internal political tool and sophisticated asset manager.

Just this week, Central Huijin Investment Ltd.—the investment arm of the US$300 billion CIC—is continuing to buy shares in China’s largest banks in order to stabilize the local economy, Bloomberg is reporting. The three banks—Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd.—have been the recipients of CIC funds for the past year. The government’s stake in the banks has reached upward of 70%, reports state.

In conjunction with this move, the CIC is expanding outwards. According to Bloomberg, the fund is looking to make an investment in Indonesian natural resources via a partnership with coal-mining company PT Bumi Resources. In September, CIC lent PT Bumi US$1.9 billion for debt refinancing in exchange for the first right of refusal in any deal exceeding US$75 million. China also is looking to invest in Ghana, Guinea, Canada, and Hong Kong, all in an effort to access minerals and oil vital for its rapid development.

China is not the only country playing with external markets while at the same time helping the local economy. Many Gulf funds—some of the world’s largest investors—propped up local stock exchanges and banks as world credit tightened in 2008. However, at the same time, some—most notable being the QIA—also have used depressed global markets to put capital to work. Its most recent move, symbolic of the Gulf’s yearning for Western assets, is the acquisition of 24% of England-based Songbird Estates—whose main interest is in the Canary Wharf development in London—up from 15%. All together, the QIA is now Songbird’s largest investor with upward of US$555 million in the firm.