China's CIC eyes broad portfolio to spread risk

China Investment Corp is eyeing a diversified portfolio of seven traditional and alternative asset categories, broken down into 16 sub-groups, a senior official at the $200 billion sovereign wealth fund said.

Jesse Wang, the fund's vice-president and chief risk officer, told the official Xinhua news agency that CIC was seeking a blend of lower-risk and higher-risk assets with a long-term investment perspective to ride out market swings.

CIC has publicly advertised for managers to run four equity portfolios and two bond portfolios. The fund's chief investment officer, Gao Xiqing, said last week it was also hiring managers to run private equity and hedge fund investments.

Wang told Xinhua that CIC had interviewed 100 international asset managers. Caijing magazine reported at the weekend that the search for equity investment managers was now closed, while the search for bond managers was continuing.

CIC would entrust those selected with about $25 billion, the magazine reported.

China set up the sovereign wealth fund last September to earn greater returns on part of its $1.53 trillion of foreign exchange reserves, most of which is invested in safe but low-yielding U.S. bonds.

Only one third, or about $73 billion, of CIC's initial money is slated for investment abroad. CIC has spent another third of its capital buying investment vehicles used by the central bank to recapitalise domestic banks. It has earmarked the remainder to bolster the balance sheets of other banks.

Wang said CIC was facing growing challenges in its overseas investment because of the subprime crisis: the U.S. economy was not doing well and global markets were volatile.

The China Securities Journal quoted Wang as saying CIC was talking to the government about possibly modulating interest payments on the bonds issued to provide its initial funding.

Paying a fixed amount of interest even in years when CIC's returns are poor could eat into the fund's principal, he said.