(BEIJING) China Investment Corp, the nation’s US$200 billion sovereign wealth fund, signalled that it may invest in stocks rocked by sub-prime mortgage defaults.

Mr Jiwei: CIC wants to be a force for stability in global capital markets

‘CIC wants to be a stabilising force in the international capital markets,’ chairman Lou Jiwei told a conference in Beijing yesterday. He then cited a ‘recent example’ in which a similar fund invested in a financial institution with sub-prime losses, without identifying the two parties.

Abu Dhabi Investment Authority this week agreed to buy a US$7.5 billion stake in Citigroup Inc, helping the biggest US bank by assets to bolster capital eroded by credit-market losses. China Investment, which began operations in September, was set up to help improve returns on China’s US$1.46 trillion of reserves.

‘The steady stream of sovereign wealth funds buying distressed assets tells us there is a buyer of last resort out there,’ said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp, the fourth-largest Australian bank. He said that that will encourage investors to buy higher-yielding assets.

Mr Lou, who did not say which investment he was referring to as his example, said that wealth funds usually have a long term approach.

‘This investment is not a charitable activity,’ said Mr Lou, ‘From a long term point of view, this is a stabilising force for the financial market. We will do the same, that is, to become a stabilising force in the global capital market.’

Yesterday, China’s Ping An Insurance (Group) Co bought a 4.2 per cent stake in Fortis, Belgium’s biggest financial company, for 1.81 billion euros (S$3.86 billion). In October, Bear Stearns Cos, the second-biggest underwriter of US mortgage bonds, sold a stake to China’s government-controlled Citic Securities Co for US$1 billion.

‘CIC’s purpose is to achieve reasonable, long-term returns and also to improve the corporate governance of domestic banks,’ said Mr Lou. But Mr Lou said that the US$200 billion fund would need up to a year before it was ready to make major investments overseas.

‘Currently, because of the sub-prime issue, some big financial institutions have reported problems. I have noticed that some sovereign wealth funds have injected capital into them,’ Mr Lou said at a banking forum in Beijing.

The credit crisis has left American and European financial institutions reeling, feeding speculation that investors from the Gulf, China or elsewhere could target weakened lenders such as Swiss-based bank UBS AG.

CIC’s first investment, a nearly 10 per cent stake in Blackstone Group that cost US$3 billion, has lost more than 40 per cent of its value since the private equity giant’s IPO in June, prompting a firestorm of criticism on Chinese blogs.

Mr Lou acknowledged the heavy pressure at home to make solid returns, especially because the fund had been given so much money to manage from the outset.

‘I would rather have US$20 billion to start with and then grow it to US$200 billion,’ he said. ‘Our management level and skilled personnel are still insufficient.’ - Bloomberg, Reuters

Source: Business Times