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| CIC-change |
| John Foley / Jun 20, 2009, 00:20 IST |
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CIC-Blackstone: China Investment Corporation may have learned that politics rarely brings riches. The sovereign wealth fund’s chairman said only in December that he didn’t dare invest in financial assets, prompted by some painful losses on Western firms. Now the CIC has topped up its investment in Wall Street bank Morgan Stanley, helped fund manager BlackRock buy rival Barclays Global Investors and is reportedly planning to pop $500 million into a hedge fund backed by buyout group Blackstone. It suggests a welcome sea change.
All sovereign funds are political to some degree, but CIC has been especially so. Born of a spat between the central bank and finance ministry over managing China’s $2 trillion of foreign reserves, it holds Beijing’s weighty stakes in domestic financial institutions. CIC also reports directly to China’s state council - unlike other state firms. That has made it hard to believe it was focused purely on investment returns.
Early investments in Blackstone and Morgan Stanley were easy to square with Beijing’s goals of increasing the sophistication of its own financial firms. Rhetoric mirrored politics too: CIC chairman Lou Jiwei’s worries about foreign governments’ policy mistakes foreshadowed more spirited critiques from China’s premier and central bank officials.
Two things suggest a new approach. First, CIC has recently redrawn the lines by which its investments are managed – categorising them not by asset class but by investment motive (public markets, tactical, private and “special”). True, that leaves room for overtly political punts. But at least it would place them in separate boxes, with separate managers.
Second, its new crop of investments look more financial than strategic. Buying shares in Morgan Stanley address some dilution from sitting out the US bank’s last capital raising, but gives little extra influence. Investing in hedge funds may look like a vote for opacity, but will give CIC no direct influence on company policy.
Meanwhile, the investments give the lie to the idea that China holds a grudge over its more public slip-ups. CIC has taken a $1.9 billion paper loss on its Blackstone shares.
A shift towards financially motivated investments would do China much good. Chinese capital still isn’t as welcome as it might be, as shown by the recent Chinalco blow-up. Investors still suspect there may be more to such injections than meets the eye. What China needs is to make more investments that are plainly that – investments, and nothing more.
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