From Money & Investment, page 30, issue. 357, February 3^rd, 2008
Translated by Zuo Maohong
Original article:[Chinese]

Over 200 international fund managers have submitted applications to handle China Investment Corporation (CIC) assets, with about 10 of the applicants expected to make the short list in a few months.  

The sovereign wealth fund announced the open tender in December last year, and since has received a stream of reputed global players all lobbying on behalf of their respective investment management firms. 

Black Rock, a financial services provider operating in 60 countries, was among them. Its chief executive officer, Laurence D. Fink, visited Beijing on February 19.

Opening Up
Fink said Black Rock was very interested in the Chinese market, and would seize the chance to expand its operation in investment management. One of the Wall Street's celebrities, Fink's visit this time was to lobby for the CIC job.

On December 12 last year, CIC announced its decision to hire foreign investment managers for four of its portfolios - global equity, Asian equity (except Japan), emerging market equity, and Europe/Australia/Far East (EAFE).  

Each of the four areas was reportedly to be managed by several international management institutions. As recruitment for different areas would start at different times, managers for each portfolio would also be decided separately. CIC had also mentioned that new areas demanding foreign managers would arise in the future, such as private equity (PE).

CIC general manager Gao Xiqing said they were using the tender process in part to smooth criticism and suspicion over the fund's secrecy. A public bidding, he said, would add transparency to its operation.

The future foreign investment managers for the CIC would be responsible for a great part of the company's 70-billion-dollar overseas investments. Their annual rate of return on investment, as the CIC would require, should beat the benchmark rate for the corresponding period by 200 to 300 base points.

"Generally speaking, one investment portfolio should be operated by two to four managers. For one, this helps to reduce risks. For another, we can compare the managers' performance," said a China-focused manager of a foreign fund. 

However, CIC would need to consider the joint responsibilities for compensation involved, the above source said. He added in order to maintain and increase the value of reserves, the actual rate of revenue after tax should be kept above the inflation rate.

Other large sovereign wealth funds have also employed the services of private-sector managers to handle their investments. Dubai International Capital, for example, invited 75 professionals from over 20 countries, and planned to increase this figure by 50% this year.  

For the CIC, the open tender was only one of channels for recruiting more talent to its operation. The EO has learned that Jin Liqun, vice-president of the Asian Development Bank (ADB), might be appointed as the vice-chairman of the CIC once his tenure with ADB has ended later this year.

Jin was the first Chinese vice-president of the ABD since its inception in 1965, a post he took on August 1, 2003. Prior to that, he was deputy executive chairman of the World Bank, director of the World Bank Department under the Chinese Ministry of Finance, and deputy finance minister.

Bad Bets, New Opportunities
To date, CIC has made three investments – five billion dollars in one of Wall Street's biggest investment banks Morgan Stanley; three billion dollars in the second largest US private equity firm Blackstone; and 100 million dollars in China Railway's H-shares.

Each of these investments incurred severe criticism. With 20 billion dollars in its coffers, the CIC endured tremendous pressure in balancing cost and capital. If the annual rate of returns sunk below 10%, the company would face losses. As a result of this pressure, finding professional investment managers became the CIC's top priority.

The CIC investments last year focused on banking and have performed poorly thus far. However, new opportunity might be dawning on the company as the US sub-prime mortgage crisis continued. Fink of Black Rock believed the declining US economy had triggered public fear and panic that induced investment opportunities. He added this would be a good time to buy-over or invest, suggesting options in mortgaged assets, commercial fixed assets and bank credits.

Guy Hands, chairman of Europe's leading private equity firm Terra Firma, said he was pessimistic about this year investment prospects and expected more bad news from investment banks. However, he believed the situation would "unwind itself in 2009 when opportunities for investment should re-present themselves".

The CIC had learned from past experiences that concentrated investments were the most contentious and likely to draw global attention. Although CIC had yet to set investment limits for each portfolio, CIC Chairman Lou Jiwei had said: "CIC is not political motivated, it is aiming for commercial goals."