China Fund Shifts Focus From Energy; Sovereign Fund China Investment Corp. Looks for Plays on U.S., European Recoveries

China Fund Shifts Focus From Energy

Sovereign Fund China Investment Corp. Looks for Plays on U.S., European Recoveries


Feb. 18, 2014 12:39 p.m. ET


BEIJING—China Investment Corp. is selling energy and commodity holdings while seeking to capitalize on recovering U.S. and European economies, a major shift in strategy for the $600 billion sovereign-wealth fund.

Since late last year, CIC has unloaded more than $1.5 billion of shares in companies including AES Corp. AES +0.96% , a U.S. power company, and GCL-Poly Energy Holdings Ltd. 3800.HK +1.52% , a Hong Kong-listed green-energy company, according to regulatory filings by the companies. CIC, the world’s fifth-largest government-controlled fund, has also sold stakes in two other Hong Kong-traded wind-power companies, according to filings.

In addition, CIC is considering selling direct ownership stakes in certain assets such as oil-sands projects, according to people with knowledge of the fund. The fund is undergoing a “more dynamic adjustment” of its energy portfolio, one of the people said.

CIC, which purchased billions of dollars in resources-related holdings between 2009 and the first half of 2012, is closely watched by investors world-wide for signals on where China is steering its deep pools of capital. The shift comes as the fund’s new leadership grapples with a changing investment landscape triggered by the paring back of easy-money policies in the U.S.

As the U.S. Federal Reserve starts to taper, or reduce, its bond-buying program intended to stimulate the U.S. economy, CIC is finding energy and resources plays aimed at emerging markets less attractive because capital is flowing back to the developed world, the people said.

CIC is also responding to a slowdown in Chinese growth and Beijing’s efforts to rely more on domestic consumption to fuel the economy, and less on big infrastructure and construction projects. China’s consumption of commodities is still expected to grow, but the shift in emphasis has reduced the urgency for Chinese investors to snap up supplies, according to analysts and the people close to the fund.

Chinese companies last year plowed $44 billion into foreign mergers and acquisitions in oil, gas and mining, according to data provider Dealogic, up from $30 billion in 2012. But there are signs that China is growing more cautious. A top economic-planning official in December 2012 lauded Chinese efforts to secure mining assets abroad but cautioned against rising costs.

Meanwhile, CIC is showing greater interest in the rebounding U.S. and European economies. The U.S. economic recovery has been “accelerating” and Europe has “a lot of potential,” CIC Chairman Ding Xuedong said at a January conference in Hong Kong. Mr. Ding, who took the reins at CIC in June, added that emerging markets could suffer “capital outflows or a credit crunch” if the Fed continues to taper.

The fund is considering moving its North American base to New York from Toronto and expanding its presence in Europe, the people close to the fund said, though no final decision has been made. CIC’s team in Toronto, led by Winston Wenyan Ma, a former Wall Street banker, so far has mainly focused on doing energy- and resources-related deals in Canada. A potential move to New York could lead to more investments by the fund in private equity, real estate and other U.S. assets, the people said.

CIC has increased its stakes in General Growth Properties Inc., GGP +2.14% a big U.S. mall owner, and in Rouse Properties Inc., RSE +1.90% a U.S. real-estate investment trust, as a way to bet on the recovery in the world’s largest economy, according to the people familiar with the fund.

The fund started to pare down its energy and resources portfolio in late 2012, and has been accelerating that effort since late last year, according to these people. The fund in January sold a 7.8% stake in GCL-Poly, a green-energy supplier listed in Hong Kong, for $402 million.

The sale, the second by CIC in six months, left the fund with 4.6% of the company, down from its initial 20% stake.

Lu Yeung, a spokesman at GCL-Poly, said the sale reflected “the change in direction in CIC’s portfolio management” and that the company had attracted other big-name institutional investors. CIC paid $710 million for the 20% stake in November 2009. So far it has reaped a total of $689 million from the sales.

In December, CIC sold 66 million shares in AES, a Virginia-based power-generation company with much of its business outside the U.S., cutting its stake in the company to 8.3% from 15%. CIC paid $12.60 a share, or $1.58 billion total, for the 15% stake in 2010.

A regulatory filing by AES shows that the company bought back 20 million of those shares for $12.90 a share. An AES spokeswoman declined to comment.

In December, AES Chief Executive Officer Andres Gluski said in a statement that the share buyback was “in line with our capital-allocation framework to maximize value for our shareholders.” Xu Dapeng, a CIC director, said in the same statement that the stock sale by CIC was a part of the fund’s “normal investment-management process.”

CIC also has recently sold stakes in China Longyuan Power Group Corp. 0916.HK -1.04%and Huaneng Renewables Corp. 0958.HK -1.28% , both wind-power companies listed in Hong Kong. Officials in both companies didn’t respond to requests for comment.

CIC, founded in 2007, invests part of China’s vast hoard of foreign-exchange reserves abroad. The fund’s focus on resources has been widely regarded as “strategically motivated,” said Friedrich Wu, an adjunct associate professor at Nanyang Technological University in Singapore who follows CIC. “China, an export-dependent economy, requires access to secure supplies of energy and natural resources to power its economy,” he said.

CIC officials have said the fund makes investment decisions based on commercial principles and energy investment was a good way for the fund to benefit from China’s own economic growth.

Still, CIC officials have acknowledged that the energy sector’s cyclical volatility poses a risk to the fund, which reports the value of its assets by market price. In 2011, when the fund suffered a 4.3% loss on its international portfolio, the biggest decline since its inception, it blamed “a downward-trending market” that led to shrinking values of its energy and resources holdings.

Some of CIC’s investments in the sector, including the initial $150 million invested for a 7.4% stake in Canadian oil explorer Sunshine Oilsands Ltd. 2012.HK -1.88% , are now worth less than it paid for them.

CIC’s international holdings returned 10.6% in 2012, the most recent data available.


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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