FILING REVEALS CHINESE WEALTH FUND´S EXPOSURE / THE FINANCIAL TIMES ( HIGHLY RECOMMENDED READING )

Filing reveals Chinese wealth fund’s exposure

By Henny Sender in New York

Published: February 9 2010 00:01

China Investment Corporation, the Chinese sovereign wealth fund, is using exchange-traded funds to take positions on sectors ranging from healthcare to gold, according to a filing with the US Securities and Exchange Commission.

The filing showed that CIC’s largest US stock market investments were in miner Teck Resources, investment bank Morgan Stanley, asset manager BlackRock and Visa, the credit card company.

About a quarter of its US portfolio was in exchange-traded funds, many of them provided by BlackRock’s iShares division. Investors ranging from hedge funds to retail customers have turned to ETFs, as they are known, because they are a low-cost and flexible way to take positions on sectors or entire markets.

CIC’s ETF investments give it exposure to sectors such as healthcare, materials and consumer shares. Others are a bet on rising gold prices and a third group is pegged to international stock markets including those of China and Japan.

In addition, CIC has small holdings in financial stocks including Wells Fargo, Citigroup, Bank of America and AIG. CIC, which is only about 30 months old, was given $200bn at its creation and expects another $200bn cash injection shortly from China’s bulging foreign reserve coffers. One person close to CIC said it earned more than $60bn in 2009. That would make CIC one of the more successful sovereign wealth funds in navigating treacherous markets after the financial meltdown.

Many other sovereign wealth funds in Asia and in the Middle East have lost money by providing rescue funds to financial companies including Merrill Lynch and UBS.

CIC’s $713m stake in BlackRock has risen dramatically since it committed to a share placement to help fund the asset manager’s purchase of Barclays Global Investors in the summer of 2009.

CIC’s investments in commodities companies have also paid off. Its investment in Teck has doubled in value. It has also made money on its $1bn investment in Singapore-listed Noble Group.

In spite of the Chinese government’s concerns about the US dollar, North America is the most popular destination for CIC’s foreign investments, according to data from Thomson Financial, followed by Latin America.

CIC’s 9.9 per cent stake in Blackstone is not included in the SEC filing because CIC had not been formerly established at the time of the June 2007 investment. The Chinese government’s stake, which has increased to 10 per cent of Blackstone, is being held in a vehicle called Beijing Wonderful Corporation.

Copyright The Financial Times Limited 2010.