China Investment Corporation Discloses $10 Billion Worth Of Holdings, Files First Ever 13-F
Last week the China Investment Corporation (CIC), also known as China's sovereign wealth fund, and the entity that allocates China's nearly $3 trillion in foreign assets, posted its first ever 13-F filing, which disclosed holdings of just $9.6 billion. Missing were CIC's Blackstone stake and the fund's first 2008 Morgan Stanley investment. Furthermore, the listing omits any real estate, fixed income, and foreign securities, implying that the true holdings of the sovereign wealth fund are likely much more extensive. We are confident that the CIC likely is a major holder of Treasury securities. As a reminder the CIC reported about $300 billion in AUM at the end of 2008 in the fund's first annual report. Combing through the 13-F (presented below) indicates that while the fund has a soft spot for commodities and financials (its investments in Teck, MS and Blackrock), the prevalent holdings of CIC are, surprisingly, in ETF.
Roubini Global Economics provides some useful observations on the portfolio holdings:
1) Aside from a few large equity stakes most of the CIC’s U.S. listed equity exposure consist either of very small stakes or stakes in broad sectoral or regional funds. A significant share of its investment is thus passive. The CIC seems to have found Exchange Traded Funds (ETFs) and similar instruments to be good ways to quickly gain access to a range of sectors. Exposure through such funds accounts for about ¼ of the total U.S. equity exposure as reported in this filing.
Beyond, three large stakes in Teck Resources (US$3.4 billion at the end of 2009), Morgan Stanley (US$1.7 billion) and Blackrock (US$0.7 billion), the exposures to individual stocks are relatively small. The use of index funds and exchange traded products is consistent with the CIC’s desire to minimize fees particularly on passive investments, while still maintaining a diversified portfolio. Other SWFs like the Abu Dhabi Investment Authority’s have found indexed products attractive.
2) Rather than just diversifying from U.S. assets, the CIC is diversifying within U.S. dollar denominated assets. A year ago, the CIC had much of its international portfolio in cash-link instruments including money markets. Now much of it has been deployed in equities and entrusted to alternative asset managers.
Most of these assets reported here are listed in the United States. There are some notable exceptions, mostly in the resource sector and also Canada’s Research in Motion. The portfolio included ETFs to gain exposure to China, Japan, emerging markets and the U.S. as well as the Global EAFE fund.
In addition to these holdings, CIC has reported stakes exceeding US$6 billion in several Hong Kong and London-listed equities as well as convertible debt of Malaysian and Indonesian coal companies. The CIC’s stake in American Electric Power’s wind energy arm, is not on this disclosure, perhaps as regulatory approval is pending. Adding these holdings would take the CIC’s visible holdings to well over US$16 billion.
The CIC likely has similar exposure to a cross-section of European equities, and further equity holdings in Asia. It has probably increased exposure to Latin America directly, as well as purchasing stakes in Vale traded in the U.S. This might bring CIC’s equity allocation to about US$25-30 billion or about 30% of the international portfolio. This allocation is consistent with the original asset allocation plans touted in 2008 as well as roughly similar to that of other sovereign wealth funds. Given CIC’s desire to make high returns to offset the costs its parent incurred in its recapitalization process, an equity and alternatives heavy portfolio is to be expected.
3) The CIC is heavily exposed to resources, especially metals and mining, consistent with the sector’s weight within China’s foreign assets. The share of gold alone is particularly noticeable. The CIC not only has stakes in gold producers like Anglogold Ashanti but also in the SPDR gold fund. The exposure U.S. traded energy equities is somewhat smaller. The CIC does of course have stakes in some foreign energy companies, but the bulk of China’s 2010 energy purchases were made by the China Development Bank which extended loans to several cash-strapped energy companies and countries.
Within energy, clean tech is a focus. Chinese investment in the sector domestically and internationally is on the rise, befitting a country that has become a major assembler of clean tech components. More investment and some partnerships (for example with HK based Poly energy) suggest the CIC is providing R&D capital for these key sectors. Such partnerships seem reminiscent of some of Mubadala’s deals.
4) The CIC is still very exposed to U.S. financials. Large stakes in Morgan Stanley and Blackrock account for over US$2 billion combined (end 2009 valuations), but the CIC also has stakes in several large U.S. institutions (Bank of America, Wells Fargo), U.S. community banks and insurance companies.
Other sectors of interest include health (both pharmaceutical companies and insurance) and other industrial holdings. Despite stakes in some U.S. railroads, interest in transportation related companies and media, telecom and technology is more muted.
5) Given this asset allocation, the CIC’s returns likely climbed in 2009, at least in US dollar terms, well surpassing the 2008 performance. 2008 returns stemmed from domestic financial institutions with losses on the international portfolio. The return on the stake in Teck resources has been particularly strong, coming close to doubling! The improvement in returns is consistent with stronger returns of many sovereign investors, which have tended to see a sharp bounce back in their assets under management.
Finally, from a governance perspective, this illustrates that the CIC continues to be at the forefront of disclosing its holdings meeting legal obligations. A cursory search of the SEC database suggests that most Middle Eastern funds do not yet seem to make such filings, which are perhaps made by their external managers. These institutions, like other investors, do of course file forms required for purchases that exceed 5%. Temasek and several government pension funds do such 13-F filings. The Norwegian fund files a 13-F quarterly but requests that the proceeds be kept confidential (the NBIM itself discloses a list of its holdings annually though).
Zero Hedge will continue to keep track of TIC data to fill in the roughly 96% in gray area that is not covered by the 13-F.