China's $1.2 trillion wealth fund reorganizes key investment arm

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China’s sovereign wealth fund is merging a unit overseeing billions of dollars in private equity and infrastructure investments into its main operations, according to people familiar with the matter, seeking to boost efficiency after a talent exodus and as offshore investing grows more complex.

China Investment Corp., which oversees $1.2 trillion in assets, recently combined the operations of CIC Capital with its main overseas investment business, the people said, asking not to be named because the matter is private. The consolidation partly unwinds the Beijing-based fund’s 2015 decision to create the unit as its direct investment arm to boost long-term returns and help Chinese companies expand abroad.

While the functions of CIC Capital’s teams are little changed, the new structure is another step in streamlining operations. The sovereign wealth fund last year restructured how it decides on international investments, setting up two new committees in place of bodies at units CIC Capital and CIC International that had overlapping responsibilities.

CIC didn’t reply to an emailed request seeking comment.

CIC Capital has been a key part of Chairman Peng Chun’s effort to raise direct and alternative investments to 50% of the sovereign wealth fund’s overseas portfolio, a goal he has months left to achieve under a five-year plan that runs till 2022.

The unit’s main business departments, which look after private equity and infrastructure investments, have now been renamed and re-aligned alongside departments operating in the same areas at the wider company, the people said. The middle and back-office functions have also been renamed or combined.

CIC Capital committed $19.5 billion of investments in four years through 2019, according to its annual reports. Its key deals include Tank & Rast, which provides services like gas stations on German motorways, and Turkey’s container terminal Kumport.

The unit has seen an exodus of senior investment professionals, especially after dealmaking became more difficult in the U.S. and the pandemic curbed travel. At least nine senior managers have departed in recent years, including Executive Vice President Zhang Qing, who left in early 2019, and Winston Ma Wenyan, a managing director and former head of the Toronto office, who quit in 2018.

CIC has received little fresh capital from the government in the past decade as the nation’s foreign exchange reserves halted their years-long surge. The company has also disclosed little progress after saying in 2017 it was considering bond sales to boost funds at CIC Capital to as much as $100 billion.

Direct and alternative investments at the sovereign fund expanded by about 0.8 percentage point to 43% as of end of 2020, reversing a decline of almost 2 percentage points in 2019, according to its 2020 annual report, the latest.

Before the revamps, CIC’s overseas investments were handled by CIC International and CIC Capital, with each unit executing and managing investments approved by their own investment committees. Now both units’ departments collectively handle and manage investments along business lines, guided by two committees overseeing public assets and non-public assets.

Here are some of the recent changes made:

  • CIC Capital’s Investment Department Two has been renamed Private Equity Investment Department Two; the business in charge of infrastructure holdings, Investment Department One, is now Real Asset Investment Department Two, the people said.
  • CIC’s private equity department has become Private Equity Investment Department One, while the real estate department is now Real Asset Investment Department One, the people said.