Restructuring the China Investment Corporation

What would CIC look like without external managers?

March 15, 2011

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1265339_chinas_economyBack in February, I linked to a research report by Z-Ben Advisors that predicted the CIC would undergo a complete restructuring of its portfolio; the report said the CIC would soon prioritize strategic direct investments and forego all portfolio and passive investments through fund managers. Obviously, that would be a huge change with serious implications for fund managers, target firms, and target countries.

Well, Z-Ben has just released a follow up report that offers further details and explanations about the purported reorganization. Here’s a blurb:

“In this report, we forecast the potential shape and construction of CIC’s future portfolio, should it succeed in persuading State Council/ MoF that restructuring is wise. Our results: public-market equity exposure will take the biggest hit as CIC emphasizes other assets, while even a conservative path towards an alts- and property- dominated portfolio will quickly make CIC the world’s largest buyer in those classes.”

I think we’d all agree that this transition depends on the big unanswered question facing the CIC: will funding be renewed? Interestingly, the report suggests that the delay in the CIC’s funding renewal is due to the slow nature of the reorganization planning in the first place:

“We believe that discussion of this plan, which holds significant risks for CIC’s reception in foreign markets and for the fund’s utility as a model for other institutional investors in China, is the main reason that delays in grant- ing CIC more funding have lasted so long.”

You can download the rather provocative report here.

This post originally appeared on the Oxford SWF Project website.

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