China Loses Manager of Its Cash Hoard

China Loses Manager of Its Cash Hoard

Zhu Oversaw $3.8 Trillion in Foreign-Exchange Reserves


Updated Jan. 28, 2014 2:07 p.m. ET

BEIJING—The invisible man behind China’s $3.8 trillion foreign-cash hoard is disappearing.

Zhu Changhong, a former star bond trader in the U.S. who was recruited by Chinese officials about four years ago from investment firm Pimco to manage the country’s foreign-exchange reserves, resigned unexpectedly, officials said Tuesday. The move comes as China grapples with boosting returns at a time of turbulence in global markets.


In a statement to The Wall Street Journal, China’s State Administration of Foreign Exchange, the division of the central bank that manages the foreign currency the bank buys to control the value of the yuan, said the 44-year-old Mr. Zhu is set to wrap up his mission at the agency at the end of the month.

His departure was made “according to plan,” the statement said, while adding that Mr. Zhu played “an important and outstanding role” in managing the reserves.

The division’s press officials declined to comment beyond the statement. Mr. Zhu, whose title was chief investment officer, declined to comment and referred questions to the agency.

The agency doesn’t disclose returns. But Mr. Zhu won praise inside and outside the agency for persuading superiors to invest more in U.S. corporate bonds, stocks and real estate, rather than relying on the safe but dull investments in U.S. Treasurys that were the agency’s hallmark.

Outside the agency, he was dubbed “the invisible man” by China’s media for his unwillingness to appear in public or have his photograph taken.

“Zhu’s departure is a big loss to SAFE, and to China,” said Peng Junming, a former division official who runs his own investment firm, Empire Capital Management.

It isn’t clear why Mr. Zhu left. But people familiar with his work said he had trouble navigating internal politics at the secretive Chinese government agency. His two decades in the U.S. were held against him by some colleagues, who felt slighted that he was given such a plum position without having to work his way through the Chinese hierarchy, they said.

“Zhu’s performance was viewed positively, but there was always some doubt over whether he would fit in longer term,” said a Chinese government official.

Not all those with long U.S. experience have had similar problems. The agency’s chief, Yi Gang, taught for years at Indiana University.

Mr. Zhu was the right-hand man to Bill Gross at Allianz SE’s Pacific Investment Management Co., or Pimco, before Chinese officials recruited him in late 2009.

While at the agency, Mr. Zhu persuaded it to bet on Japanese stocks in the second half of 2012 before they rose sharply, said people familiar with his work, though the size of the position wasn’t clear. He also boosted the agency’s investments in European debt when many other investors were wary of its riskiness, the people said.

In June 2010, just after Mr. Zhu started at the agency, about 45% of China’s reserves, or $1.11 trillion, were invested in U.S. government bonds, according to an analysis by ChinaScope Financial, a provider of financial data. Since then, China’s overall purchases of U.S. debt increased, but Mr. Zhu steadily helped reduce the percentage devoted to Treasurys to about 35%, or $1.29 trillion, in September 2013, the most recent figures available.

It isn’t clear what Mr. Zhu plans to do next. Officials said the agency’s policy forbids ex-employees in certain positions from competing with SAFE for a certain period. His successor will face a quickly changing landscape. The U.S. Federal Reserve is expected to continue scaling back bond purchases intended to stimulate the U.S. economy and perhaps to start to raise interest rates. Economists say those actions should help boost the value of the dollar and make U.S. assets more attractive.

Policy makers in many emerging economies view the Fed’s actions with alarm because they fear they would lose the investments needed to pay off foreign debts. In recent weeks, currencies in many developing countries, including Argentina, Brazil and Indonesia, have fallen, and markets have sunk in part because of fears those economies could get hit.

With its vast reserves and largely closed financial system, China is in a different situation. SAFE welcomes the Fed action, central bank advisers said, because it might reduce the buildup of China’s foreign-currency holdings. Investors tend to flock to the dollar during times of uncertainty, especially if the dollar is rising in value, which could ease demand for yuan.

The nation would also benefit, because for years China has invested much of its reserves in dollars and seen the value of its holdings sink as the dollar loses its value against the yuan.

Mr. Yi, the agency’s chief, has argued that China should take steps to slow the growth of China’s foreign reserves or even to reduce them. Those steps include allowing the market a bigger role in determining China’s exchange rate, rather than having the central bank intervene regularly to slow its appreciation, and making it easier for Chinese citizens to invest overseas and for more foreign capital to be invested in domestic markets.

If China were to allow the free flow of funds into and out of the country, economists at the International Monetary Fund estimate, the overall result would be a net outflow of $1 trillion to $1.6 trillion.

But Mr. Yi has yet to persuade the leadership to take such steps. Standard Chartered PLC estimates that China’s reserves will increase $400 billion in 2014, largely because it expects the country’s trade surpluses to widen.


January 28, 2014 12:05 pm

China’s ‘invisible man’ quits forex role

By Simon Rabinovitch in Shanghai

The “invisible man” who held one of the world’s most important investment jobs for the past four years in leading the diversification of China’s foreign currency wealth has resigned.

Zhu Changhong had been the chief investment officer for the State Administration of Foreign Exchange, the agency that manages China’s $3.8tn mountain of foreign exchange reserves. He left a starring role at Pimco, the world’s largest bond house, to join SAFE in late 2009 and is now expected to return to the private sector, according to two people familiar with his decision.

Trained as a physicist, Mr Zhu earned the “invisible” moniker for his extreme reluctance to make public appearances. He has never given any media interviews, and the only photos of him online are a grainy picture from his student days and an unidentified shot from the time of his return to China.

But while operating in the shadows, the impact of Mr Zhu, 44, on the management of China’s foreign currency riches has become increasingly clear.

SAFE has moved away from the US dollar to a broader range of currencies. It has also shifted away from US government bonds, which used to dominate its portfolio, investing more in corporate debt, in private equity and even in property.

The portion of dollar assets in China’s reserves fell to 49 per cent as of the end of June 2012 – the most recent detailed figures – down from 69 per cent three years earlier, before his arrival, according to an analysis of US Treasury data.

China Business News, the local newspaper that was the first to report Mr Zhu’s departure from SAFE, cited industry insiders as saying that he had perfectly timed the surge in the Japanese stock market over the past year.

SAFE’s more aggressive investment stance under Mr Zhu has also allowed the agency to overshadow China Investment Corp as the primary vehicle for diversifying the country’s foreign currency holdings. CIC had been established in 2007 as China’s official sovereign wealth fund and was given a specific mandate to earn a higher return on the country’s bulging foreign exchange reserves.

But the central bank, which controls SAFE, has long been uncomfortable with handing money over to CIC because the fund operates under the auspices of the finance ministry. As a result, it has fought to keep the vast bulk of the reserves in SAFE’s hands, transferring less cash to CIC than had been expected. Mr Zhu’s strong investment record was seen as helping to justify that stance.

Mr Zhu, who holds a doctorate in physics from the University of Chicago, worked at Bank of Americabefore joining Pimco in 1999. He led Pimco’s derivatives desk and also managed a series of hedge funds for the bond house before moving back to China.

His departure from SAFE is the second major personnel change for China’s sovereign wealth funds in recent days. Last week, people familiar with the matter told the Financial Times that Gao Xiqing, the founding president of CIC, was set to step down.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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